How to Plan a Divestiture from HR’s Perspective

I'm Kisam Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals. Before we get started today, I want to let you know I recently published a book called Agile M and A. We all know the M and A process is highly inefficient and there's no real standard or evidence based approach to completing M and A deals. Agile M and A is a project management framework that emphasizes responding to changes, collaboration and continuous improvement. This means your team will improve identifying risks and opportunities during diligence as well as planning and executing integration so you can actually deliver on predicted value drivers. Get your copy of Agile M and A on Amazon or any major bookstore. Learn more@agilema.com hi. Today I'm here with Sally Cunningham. At the time we recorded this podcast, Sally was the HR Executive and M and A leader for GE Corporate, where she was leading the HR work streams for the sale of GE Healthcare's biopharma business to Danaher, which closed on March 31, 2020. The business, now called Sativa, is a standalone operating company within Danaher's Life Sciences segment. Sally transitioned to Sativa at close and is now the HR Integration leader for the business. Today we're going to talk about planning and executing divestitures from an HR lens. How are you doing today Sally?

I'm great. Thanks so much for having me. Kusan. I'm excited to be here.

Hey, it's my pleasure. Maybe we can just kick off with a brief introduction on yourself.

Sure, I am. As you said, I'm Sally Cunningham and I am an HR deal lead at GE and I've been with the company about 14 years now. I've spent about half of my GE career working full time in HR, M&A, but prior to that I was working a lot on deals within the business where I was a global HR business partner and worked on a number of transactions. One thing led to another and I eventually moved into the HR M and A space full time and I've worked across the healthcare business, GE Digital, GE Corporate and back to Healthcare now today. So I've had a varied career in GE and hope to share some interesting insights with your audience today.

It's funny how we all get sucked into M and A.

It is. Well, it's pretty addictive.

That's true. I hear that pretty often. Sally, can you briefly discuss the larger role HR plays when conducting a divestiture?

It's A really interesting role and one that I have personally watched evolve over the years. I think HR has really positioned itself to have that bigger feet at the table, as we say in hr. It's interesting to see how much the deal teams really rely on the HR team to bring a number of matters forward related to the culture and the integration of the business. But you know, certainly also a lot of the transactional piece which would be related to the payroll and the benefits and those types of setups. There's a wide variety of work to be done in the HR space within M and A. And that is what I think makes it so interesting.

How do you start the process of moving employees?

This is a great question, I think, to start with because this is always the first thing that I talk about when I'm meeting with an HR leader in one of our businesses that's getting ready to prepare for a transaction, especially involving a divestiture. And the first thing that we talk about is understanding the very specific products or assets that are being sold and then identify the people around those assets. And we often find ourselves working with a deal team or business leadership and they'll say, hey, we're going to sell this business, we're going to sell this segment. And everybody around the room has a slightly different idea in their head of what that may or may not mean. There can be some real confusion about exactly what is being sold, especially if it's a well integrated business that maybe fits within a broader umbrella or it's just certain assets within a segment. And sometimes you find yourself in a situation where a buyer is only wanting the product and will enter into a separate agreement with the seller where the seller may continue to provide commercial support or manufacturing. And so it's really critical to know exactly how the assets and the legal entities are being packaged before we start aligning the people around them. And once we know that information, then we can identify our core population. And that would include product development, commercial supply chain, et cetera. And then from the core population we dip into the support or the enabling functions like finance, hr, IT and so on. And those are the functions that are often shared resources or they're part of COEs in a larger business like mine. So there's a lot of work up front to identify that population that should be in scope for the deal.

What does COE stand for?

Center of Excellence. Thank you for calling that out. I'll try to remember to not use all of my GE speak throughout the rest of our conversation.

You know, actually could you give a brief definition on a center of excellence, because some people aren't familiar with that function.

What we find in a lot of larger organizations is we'll achieve scale by creating centers of excellence around hr finance some of those functions where it makes much more sense economically to share resources rather than have them fully dedicated to a specific business segment. And so you'll find in companies like ge, we'll have a number of coes in place where we'll provide those services across multiple businesses. And certainly saves a lot on headcount and just creating scale for those functions.

I didn't realize you can create multiple per different function. I always thought of it as one central center of excellence.

Right.

How does legal entity structure make an impact in all this?

So once we know those assets that are being sold, that means that we should also have an understanding of the legal entity structure that's going across to the buyer. And that can make a difference with regard to knowing if the employment related liability liabilities like pension plans will go across to the buyer. So in an asset transaction, for example, it's just the employees and other specifically defined assets and not the related liabilities. But in a large integrated company, the benefit platforms are often shared across multiple legal entities. So even if a specific legal entity is being sold, the benefit plan would not necessarily go across with it because that would, you know, in essence create multi employer benefit plans. Understanding that legal entity structure and what is contained within it and what needs to stay behind with the seller, what we're able to send across with the buyer is quite important.

How does it work on the other side if the buyer isn't ready to set up payroll or benefits?

Well, we have options and there are some really interesting options I think out there that we've plugged into over the years. And GE's been really good about helping buyers get through that transition. So a number of countries or locales will allow for the seller to continue to provide payer and benefit services under what's called a transition services agreement, or TSA for short. And they can do that for a period of time post close. It really just allows the buyer some breathing room to set up payrolls and benefit platforms where they don't currently exist. So with the transaction, the legal entity goes across to the buyer at close and the payroll and benefits continue to be provided as a service to the buyer through the seller. And this is usually for no longer than 12 months post close. Some countries don't allow for these types of arrangements because of labor laws, or sometimes these arrangements can be challenging if there are pension plans and creating that multi employer benefit plan or issues with co employment. But a number of jurisdictions do allow for this. And a lot of our buyers like to have this extra time because they want to, they're in a hurry to close the deal and they want to get the transaction done. But it does take quite a bit of time sometimes to set up a payroll, especially if you're doing it from scratch. And so having that extra, that extra breathing room that I was describing for the buyer to use what we already were offering GE in GE precloth to keep that going for the employees can make that transition much easier. There's another option and some countries or locations will allow for leasing agreements. An example of that would be a case where the deal is closing, but there are employees who don't sit on a legal entity that's going across to the buyer. And so we have these employees sitting on a non transferring legal entity. The buyer's not ready to payroll and benefit them because maybe they need to set up a legal entity on their end and then the subsequent payroll and benefit plan. And in these instances, employees can continue to perform their jobs in this case for the buyer and receive pay and benefits from the seller. It's just different from the TSA because the legal entity the employees reside in hasn't transferred to the buyer at close. These arrangements also have limitations. There's co employment risk, usually not more than 12 months post close. We can keep these in place and they're really only done as a temporary bridge while the buyer is establishing their entity with a payroll and a benefit plan.

So it sounds like local laws make a significant impact on this whole process.

They certainly do. Local laws and the way that the employees are transferring across. So local law may allow for a TSA if the employees are coming across on a legal entity that's going across to the buyer at close but may not allow for a leasing agreement if employees remain behind on a non transferring legal entity. And it's an asset transaction. So every country is a little bit different and you rely on a team of experts to help guide you through that. We have a team of experts that help us with that. But you also, you could rely on your labor and employment to help you.

With that as well on these larger multinational deals. Probably have to have multiple teams that are specifically focused on localized laws. How does that work?

We have a really interesting support structure and I just have to say give a shout out to them. Really incredible people who do this work. And this is the work that they do across all our different business verticals every day. And so we have a highly experienced team that has seen a lot of different types of deals. And I know you know this because you talk so much about agile and you know that no two deals are alike and they certainly aren't in our world either. And I hear all the time from my colleagues, haven't we done this before? Don't we know the answer to this? And every single thing is nuanced and we really rely heavily on our M and A people operations team to guide us through this and understand what's available to us at the local level. And we have folks who they don't necessarily cover a specific a single country. They're typically assigned to a region and they're experts in their region.

Wow, that's a great resource to have.

Yeah, it is. I'm really lucky.

Transition service agreements are sometimes required during a divestiture. Can you briefly explain what these agreements are specifically, what goes into them and in what situations are they required?

Well, like we were just talking about, the most common one that I see from an HR standpoint would be what we use for payroll and benefits continuation post close where we need it. But also very common would be a lot of times a buyer has a lot of infrastructure to set up in order to operate the company that they're the business that they're about to acquire. And if they're not going to integrate it with another business that they already have, or maybe they don't have another business to integrate into and they're keeping a separate and distinct entity structure, they may need a wide variety of these TSAs in place to help transition at close. And so we'll do things like we'll keep, we'll have a transition services agreement to keep the single sign on numbers for the transitioning employees active for a period of time post close so that those employees, while they may no longer be on a feeding payroll and being paid through ge, they will continue to have access to other systems and processes and tools that are also under a TSA agreement. So we may have salesforce tools and things like that that remain accessible or learning and development tools that remain accessible to these former employees post close because again, the buyer doesn't have the infrastructure already set up. And so we'll do things to help the employees sort of straddle life between the two companies for a period of time.

How do you keep employees from freaking out when divesting a business?

Well, there should be a compelling reason for doing the deal and the buyer may be interested in making a particular investment in the business that we haven't. Maybe the business is a better strategic fit with the buyer than it is with the seller. Having a credible leadership team in place in this business segment that's being sold who can articulate good reasons for doing the deal will help drive the engagement. And when the employees see the leadership team excited about the future, they will be more inclined to follow. And certainly wherever the buyer is willing and able to be part of the announcement or other milestones that occur pre close, employees will be listening intently for both what's said and not said. And it's also important to just put employees minds at ease with things like having a communication strategy that includes what the basic outbound terms and conditions will be for the treatment of their benefits.

So it sounds like key is to communicate well and be transparent on the big picture.

Absolutely.

What are outbound terms and conditions?

This is where the buyer commits to salary and benefits comparability in the aggregate for a period of time post close. Many companies have these types of outbound requirements. So this is a basic protection so that the buyer doesn't acquire a business and immediately slash salaries or increase out of pocket costs for benefits or reduce the workforce without layoff benefits. We would typically look at these terms and conditions in some very distinct buckets like cash compensation. So that would be your base salary plus your bonus, out of pocket costs for your insurances, the employer match or contribution to a retirement plan, paid time off, severance benefits. Those are the things that we ask our buyers to comply with with regard to comparability for a period of time post close, usually 12 months. And you know, honestly you can generate excitement about the future of the business only once the employee's basic needs are met. And you know, if we think about it as if we're part of a transaction ourselves as an employee, once you know you're going to have a job, be able to cover your household expenses, provide insurance for yourself and your family. Once you have those basic needs met, then you can focus on the future of the business. So this is all part of that overall strategy that the buyer needs to be thinking of very early on so that they can help provide those types of reassurances.

Yeah, I can imagine it benefits the people involved as well. Is that something that's transparent with the people when they do move companies?

It is fairly transparent. It depends from one deal to the next. We have the expectations certainly and it's part of the deal agreement with the buyer. And so by the time they're getting to the point where they're going out and talking to employees about what their new benefit plan will look like. They're able to send a message that, hey, look, this is a very comparable and very comprehensive benefit plan, just like you're used to. And so it may not be an exact match, but it's comparable in the aggregate. There are other things that buyers will do out the gate with various Q and A documents that will be either floating around or be part of town hall meetings. And people will ask, are you planning to do layoffs right away? And some buyers, they may be planning something, and they may be very carefully crafting how they're going to talk about that. But for the most part, our buyers are able to stand in front of employees and say, hey, we're planning to bring everybody across at the close. We're really excited about the future of this business and all that it has to offer and the things that we're going to offer to it. And so they, you know, they're really typically quite good at reassuring employees pretty quickly in the process.

What is ring fencing?

Oh, I know this is your favorite word.

It is. Because I didn't know what it meant until you taught me.

That's right. So this will go back to what we talked about earlier, about identifying that population that's going to be in scope for the deal. So first and foremost, understand what's being sold. Then identify the people who are part of those legal entities or those assets. And you'll have a core group of people who are 100% dedicated to the business. That's usually fairly straightforward to identify. And then you're going to find yourself with people in these shared services role. These. And then you will take these groups of people in these shared services roles, and we'll divide them into groups where, you know, an individual may. May be working less than 50% of their time towards, you know, work associated with this business that's being sold. And then there'll be a group of people who are generally 50% or greater. And if they're 50% or greater dedicated to the business being sold, most often they would then go with the deal. So that's sort of our general rule of thumb. We've had some variations in those percentages and looked at them differently in some different deals. But for the most part, if you're 50% or more dedicated, you're going with the deal. And we start identifying who could be in this group very early in the process, because we have to. And as we start thinking about launching due diligence and so forth. Very important that when we initiate due diligence and we share that first sort of version of the employee census that we don't have numbers that vary greatly. We wouldn't start out by sharing a census that just has the number of people who are core, 100% dedicated to the business. We broaden that to the people that truly support the business from the different functions. So before the deal is public, you're going to have employees that might be moving around and so forth. Kind of getting back to our ring fencing topic here, you'll have employees who are moving around and they don't know that the business that they're working for is about to be sold. So you can't really ring fence them. But you know, you're kind of tracking like, oh, you know, we have this person over here who just moved over there and you know, we got to watch. We've got an open position we're going to want. It's a key role that we're going to need to fill pretty quickly, that sort of thing. And then you've got this group of people who are part of the business that's being sold, but they're also working on the deal. And they've probably already been visible with the buyer because they're in these sort of top leadership roles and you know, they've been at pre diligence meetings and so forth. And those are people that are typically identified for the ring fence quite early. That conversation that you have with them about the ring fence then is accompanied typically with a retention plan of some sort so that they know that they're locked in. And then once the deal goes public, then you can let the rest of the population know that, hey, we have announced today that we're entering into this agreement with this potential buyer and you would be part of that business. And so it's really important to let people know that they're part of the business and what it means to be part of the ring fence. And that typically means that they're not going to be eligible to apply for roles outside of that ring fence that are within your company. There are certainly some disclaimers that go along with that. So, you know, one is where works councils exist, there may be a separate process for identifying who's going to be within that ring fence or at least confirming who's going to be within that ring fence. Where you have employees who were already in flight for an opportunity elsewhere in the business, you may go ahead and grant an exception for them and just understand that, hey, you know, this person was already kind of moving in this other direction, we're going to let them go. And then, you know, sort of the worst case scenario sometimes is it's not unusual to have a highly visible leader who wants to move outside the ring fence. And we have to be prepared to address that with the remaining population because it can look quite unfair to the other employees. Why does this VP get to go take this, you know, a CFO job elsewhere in the business and not have to be part of the ring fence? And I'm, you know, quote unquote stuck here. And so you have to be really tight with your communication plan around that and how that's being managed. We also have, sometimes we'll have people who they simply have something else going on in their lives. Maybe they are preparing for retirement or they have something personal going on and it's just not possible for them to be part of the deal. And we certainly try to help folks in those situations make a graceful exit and be able to explain that to the buyer. And I would also add, this isn't all on the seller. Good buyers realize that the people at the top of the ring fenced organization, the people that they're getting access to early on, those people are looking at this as a courtship. It's really on the buyer. To start to make this sound like this is going to be a compelling transaction. There's going to be a bright future ahead and the buyer has some work to do there too.

Wow, that was in full detail. And I think somebody listening to this, that's a Wikipedia contributor, should update the Arctic post and make sure you reference Sally about that because that was a pretty comprehensive explanation. Actually learned more than the first time.

Excellent.

So the other thing I wanted to bring up related to divestitures were these things called professional employer organizations, otherwise known as peos. What value do they provide in M and A?

They can provide tremendous value. So I think this kind of ties into that previous discussion we had on TSAs and leasing agreements. We have to understand the buyer's ability to be able to payroll and benefit the employees. And if you think about what the business needs are for day one, they have to be able to accept a purchase order, invoice a customer, ship a product, and of course they have to be able to pay the employees. And you know, there are a lot of things that can be figured out after close, but payroll is not one of them. And these TSAs and these leasing agreements, they are options in a number of locations, but they're short term options. They're not long term options and they're not available everywhere. And so, you know, sometimes we'll have a buyer who is maybe a private equity firm or a business that just simply doesn't operate in one of the countries where we have employees. And if they don't have the ability to payroll and benefit the employees or set it up with their internal resources, this can be a really good solution. And I also see this where we have smaller populations in somewhat remote locations, where it just simply doesn't make sense, long term sense for a buyer to set up a whole HR infrastructure for, you know, maybe less than five or 10 employees in a given location. And this is where a PEO can be a great solution because these, these organizations, they, they provide a wide range of services. It's not just the payroll and benefits, although that's, you know, it's a big part of what they do, but they do so much more. They'll do a full array of HR services and they'll even bring a person to your site a certain number of days per week or month, or whatever you need, depending on your size and your needs. I have an example from a joint venture that we had where we had two large parent companies formed a small joint venture. Each parent company had 50% ownership. And so because neither parent had majority ownership in the jv, they couldn't contribute a benefit plan to it. So a PEO was then leveraged to provide the HR services for this business. And this was one of the things that employees valued the most in this particular jv. I stayed close to it over the years after we stood it up. And the business was pretty small. It only had about 150 employees to start and it was growing. The PEO came in and provided a level of sophistication that the employees from both parent companies expected. You know, web interface, payroll and benefits portal, a big library of online training courses, and very highly competitive rates for benefits. And so PEOs are big organizations, they have great negotiating power and they have a wide range of options that, that companies can choose from so that as a buyer you can offer your employees very comprehensive benefit plans at competitive rates. And it keeps the out of pocket cost both for the company and for the employees, pretty low. And so we found that the peos have the type of buying power that we have in our own company and when it comes to insurance. So we found it to be quite effective. And you know, like I said, employees who are accustomed to working in larger organizations have expectations around the HR function that sometimes a small Company that's just trying to do this on their own wouldn't be able to afford. And the peo can come in and provide that wing to wing HR service in a real sophisticated manner.

Wow. It sounds like these peos can really help make that transition faster and easier on these different HR components.

Yeah. And you know, they do it all the time and so they can do it very quickly. If you have a quick transition that you need to do, because they already have payroll set up, they just need to add people to them. I don't want to oversimplify it because sometimes there's some payroll coding and things like that that they'll need to do. But you know, very, very quickly you can, you can transition a group of people into a PEO environment.

That's awesome. I'm gonna have to send this podcast now to Burton Goldfield at Trinet. So he's always been a great advocate of entrepreneurs and early supporters. So it's actually really nice to hear a really good understanding of how PEOs can impact even the M and A process.

Oh, for sure.

Going back to the sell process, now that you're divesting the company and you have to entertain buyers, how do you accommodate buyers?

It's a lot in the ways that we've described through our TSA agreement and such. I think that one of the biggest things that we do, which is maybe a little challenging to quantify sometimes, is that in my business, the people that are there with their sleeves rolled up and just actively involved in the transition of the employees, they treat it with the compassion and the care that they would give if their own family members were transitioning. And we partner really closely with our buyers who need a little help in understanding how to run a payroll project, plan, how to set up pay codes, thinking through all the nuances that come up along the way. It's done on a very personal level. And that goes back to that people operations team I was referring to earlier. They do a really incredible job and have really shepherded a lot of our buyers over the years through those processes. Especially for buyers who are not serial acquirers like we are and just didn't have the in house expertise. One more thing on this is that with this accommodation to our buyers is that we want our employees to have a good transition experience. It's good for everyone. We know that an engaged workforce is a productive workforce. It adds value to the deal, the buyer expects it. We certainly wouldn't want to send them a business that's limping along. We want to put the energy and effort into this that we would expect the buyer to be putting into it. And at the end of the day, it's just the right thing to do.

Now all these buyers can't be wonderful. What do the pain in the ass buyers look like?

The painful buyers are the ones who, like I was just saying, we do a lot to accommodate the buyers if they take advantage of that or they're not listening and we tell them time and again, hey, you got to prepare for this. You should be doing your planning. Can I help you with your project plan? What's your detail? Have you contacted your payroll provider to start this setup? And they're just dragging their feet. It just makes this go on that much longer. And they can't close the deal if they can't payroll their employees. So they've got to get it figured out. And so that can become quite frustrating. Sometimes buyers just simply won't put the investment into the HR function that they probably should. They're so interested in the financial that they forget how important it is to get these employees across. And if they're not focused on that, it will certainly cost money in the long run. And again, it's one of those things that's hard to quantify, but when you see it, you know how devastating it can be.

Good point, good point for our private equity listeners. Don't be reactive buyers.

That's right.

What happens on day one, Sally?

Well, it's time to party for one thing.

Well, for the corp dev folks, it is.

It's time to celebrate. You know, get your swag bag, get your, you know, your new company logo out, tattoos, whatever. I think by the time we get to day one, the HR function, well, for one thing, it's pretty exhaustive, but also has just been really tightly engaged between the buyer and the seller preparing for the payrolls benefit plans. Buyers should know what their basic policies are going to be. They should already have some key retention agreements in place, be ready to add more. Everything should be ready to go live. That will enable the business to transact and then, you know, so you get kind of the transactional piece out of the way. But also this, this is when the risk of gun jumping ends. And so now it's time to have some fun. This is when you get to launch the communications plan or the buyer does that provides the detail around the deal value drivers. They're going to become much more open with the integration plan, which they should have been developing in sort of the weeks and months leading up to close anyway. And they should have an integration leader in place. And so it's time for them to really engage with their new business on how they're going to achieve those value drivers. So this is when the fun begins.

Wow. So you're really pushing to actually create that level of excitement across the organization.

Oh yeah, you have to, I would.

Imagine just a lot of anxiety about so many things that need to happen on day one and what could possibly go wrong.

So certainly that exists. I like to think that we have so many, you know, we have an expert team in place that's ensuring that we, we have everything truly ready to go. And if something does, you know, go south, it's usually these are things that are, that are pretty fixable. And so, you know, I haven't seen something turn upside down at a close. There are usually, you know, some great and well deserved celebrations that are underway and the employees are paid without a hitch and you know, we kind of, we go on into the future.

As long as things go planned well and executed well, things will work out well.

That's right.

What does the carve out process consist of from an HR perspective?

This is interesting because it involves so many functions and I think this is where we in HR start to really see the interdependencies we have with the other functions. And I know I work really closely with our deal team, tax, legal, FP and a IT communications and you know, I probably talk to people in those functions every day but you know, certainly every week I'm also talking to people in sourcing and facilities and environmental health and safety. There's some sort of interdependency. HR touches everything and we're again closely aligned on those assets or entities that are being transferred and the employees that are aligned with those assets. So it's important for HR to know what's going on so that we can be good advocates and we can help our employees and the leadership team navigate all that uncertainty that's ahead of us. And I think that's one of the things that's really interesting for me being in the HR function is that we often think of HR in transactions being very transactional. Payroll, benefits, policies, you know, how are we going to, how are we going to make sure all of this works? But the HR function is deeply engaged as a strategic business partner in so many things that are happening in the business. And that's why I really love this work.

What's the typical timeframe you see for carve out process?

It depends on the size and complexity of the business. I've seen it Happen very quickly. And it may depend too on how stretched your deal team is. But if you're able to pull together a team of experienced people who really understand the business, you can pull a deal together in a matter of weeks. Sometimes it can take a matter of months. And sometimes you get yourself to a point where you can get to a point of a letter of intent or even a signing with a buyer, but still have quite a bit of work to do on the carve out. And so it's one of those things that can be ongoing. And I'm working on a deal right now where that's taken quite a bit more time than expected. But I also think that the signing was accelerated. And so it just can widely vary.

That makes sense. There is a variance between selling a closed down factory and an active company with thousands of of employees.

Right.

HR plays an important role in building communication plans during M and A deals. What goes into a communication plan and a vestiture?

Oh, it's endless. I have so much respect for the work our communications teams do to help everyone through our transitions. And we have a really, we're lucky. We have a really sophisticated communications function and they have a framework that. But it starts from the day of the deal going public, all the way through the integration. And it includes the whys of the transaction, what we're doing, why we're doing it, press releases, other information that's being shared. They collaborate really closely with our business leaders on messaging and how to effectively push content and other important information to employees. They keep their ears to the ground and they develop our extensive Q and A documents. I've personally contributed a lot of content to these documents over the years. It's kind of a personal interest of mine in the communications space. So I take that seriously and I like to be part of it. But the communications team, they're the real experts and they turn it into the concise and sensible and digestible messages that come out at the end.

Yeah, it's interesting you contribute to help that. What are the key materials HR must prepare when it comes to diligence during divestiture?

Well, the first thing would be pulling together that employee census. Once we understand those those assets and legal entities that are being transferred or being scoped into the deal. And the interesting thing with the census piece is that because of gdpr, which is general data privacy regulation, and really even before GDPR existed, you know, in my own personal experience, we just, we don't release personal identifying information until it's absolutely required. And often that comes along with a separate agreement between the buyer and the seller related specifically to GDPR requirements. So it's doing, it's an agreement on top of the agreement. Early in the process, when we're preparing to launch due diligence, we will share aggregated information. So we'll provide average salaries by function or location, or pay brand or grade or number of incumbents in each job type, things like that. But we don't provide individual level information. And if there's a single incumbent, say in a specific job type, or a pay band or a location, we won't disclose anything individual. We'll only disclose information when we have something that we can share in the aggregate. Our finance team will prepare information about total salary, benefits, cost, things like that, so that the buyer can build their financial model. But we take data privacy very seriously. And so we've always been very careful about this. We use password protected files, virtual data rooms with limited access to the folder. So not just using the vdr, but within the VDR have additional access restrictions. And you want to be careful not to share information with potential buyers and especially when they are competitors who may not complete the transaction, but then have access to something that's just so highly sensitive and confidential. And it's not just limited to the employees. I mean, we're talking about customers, products that might be under development and things like that. A competitor could use that information to raise your employee base or develop a similar product, any number of things. So we do take that quite seriously. So with that aggregated census information, we'll also put together a basic org chart. So the names of course will be removed, but we'll put the senior leadership roles kind of in their traditional org chart box format. And then we'll list underneath things like the number of direct reports and maybe where they're located, just kind of a narrative about each function. And so those are kind of two visuals that we have out the gate. And you know, I know if I'm in the position of being the buyer, the first thing, those are the two things that I want to know first. But then I also want to know what the costs are going to be around the deal. So salaries, bonuses, benefits, change in control, or special severance provisions, pending litigation, any of those things that are going to cost money to the deal, where we may have pension or other employee related liabilities, all of that, I prioritize pulling together that information for the due diligence room first. And now, you know, I don't release it until the potential buyer is asking for it. But I Pull it together in the background so that it's ready to go. And then we'll move on to things like employee handbooks, policy manuals, copies of employment offers or contract templates. Just the templates, not the offers themselves. Some buyers will even ask for things like employee engagement, survey results, affirmative action plans, things like that. So you know, what they ask for. We'll dig up where we can and where we think it's appropriate to share. I think one more thing here that's really important as we prepare to put together that data room is it's important to just have clarity. And so if I can be in direct contact with my HR counterpart at the target organization, I like to start talking to that person out the gate and make sure I understand what's on that request list. Because sometimes the request lists are written by their banker and they don't really get at what the buyer is really looking for. And so I like to try to start building that relationship with my HR counterparts early in the process so that we aren't spinning our wheels, chasing down information that they simply don't need.

Make sure you know what they're actually looking for and not just a copy and pasted list.

Right.

So to turn a little bit, what type of transition records or data are.

Required for HR to gather when, when the deal closes? We have a number of things that we'll send across to the buyer, you know, especially if it's a stock transaction. And that'll be things like records related to payroll, service, credit calculations, whatever the typical content would be in an HR file or you know, what we might call a personnel file, documents that the employee has signed over the years, salary and bonus history, performance reviews, training records, things like that. And for the most part, we're, we've moved in all the locations where we possibly can. We're doing more of that work electronically or storing more of that information electronically. And in some locations it's still paper files. So shortly after the close, we send all of that information across to the buyer.

Makes sense. What's your involvement when it comes to PAs?

So a couple things. One is this is where that agreement between buyer and seller to maintain the pay and benefits comparability in the aggregate for the 12 months post close, it's housed, it's part of the deal agreement. And we would include things like reps and warranties around compliance with benefits or pension plans that might be going across to the buyer pending litigation, if there is any, there's a specific employee matters agreement included. But HR items can often be found throughout the purchase agreement, not just limited to what's in the employee matters section. So we have to scour it really closely. So what will typically happen is when the first draft comes through from the legal team, regardless of who's written it, sometimes the seller writes the first draft, sometimes the buyer does. If I'm the. If I'm on the seller side, I have a pretty good idea of what that content's going to to be for the HR section, because our external law firms that we work with have a pretty consistent template that they follow. But if the buyer is the one who has taken the first draft, that it probably needs quite a bit more attention out the gate because it'll have things in it that may not apply or things that will want to redline. And so I do get involved. I spend the time to read through the document myself. I also have some partners within our corporate function that I reach out to. One in particular who's just done a lot of deals, and basically every divestiture runs through her as a sounding board and for expert advice. We also have our labor and employment council that sits within the business, and we have employment counsel that's part of the external law firm that we've retained on the deal. And so there's usually three or four of us that get on these calls. And as the different turns of the document are passed back and forth, we'll review all of that together. It's important for me, as the deal lead, to understand what the content is in there, because I can help the buyer understand, hey, you got to be thinking about this, because something's got to be ready or you have to. You've committed to parity on a particular benefit. And so it's important for me to understand how the employees are going to go across to the buyer.

Wow, you know, you're legit when you're actually reading pas.

Oh, not my favorite thing to do. But yeah, it is something that, you know, it just happens to be done. And once you kind of get into a rhythm with it, if you're doing a high volume of deals, it gets a little easier. I may be a little rusty because I'm not doing the volume of deals that I once did. I'm working on a very large deal right now, and so I'm sort of really focusing my time on that and not doing other transactions. But when I've been in the rhythm of doing a number of transactions in a row, it's become a lot more routine and easier.

So there's a lot of work that goes into divestiture.

It's huge.

Yeah, there's a ton. And what is your biggest headache challenge in the whole process?

I think that it's one of the headaches or challenges is there's a lot of very detailed work and a lot of work that just requires time to think. And sometimes you hard to set aside the time that you need to think because by the time you get to the point in your day where you feel like, okay, I've responded to all the fires that were going on today, now I'm exhausted and I can't think through this problem. That's certainly a big challenge. It is important to have the right team of people associated with the deal to help. And I need people to work with a level of intensity on a transaction that, you know, the same level or more of intensity that I work with. And that doesn't always happen both internally and externally. And so, you know, it's on me to get a lot of work done through others and motivating people to action. So that's something I spend time thinking about too. How do I mobilize this person or this group of people to take action and prepare something that we really need for the closing.

That sounds like a good list of keys to success where you have to spend the time to be able to look around the corners, have time for out of box thinking and be able to actually collaborate with your team to.

Get things done right.

So what is the craziest thing you've seen in M and A?

I know you always ask this question and I did think about it in advance.

That's cheating.

I'm not sure that I have something completely crazy. I mean we've, we have had deals where. I can think of a deal where it was so exciting. We were, we were acquiring this business. It wasn't very big, but it was, it was a neat business. And we were excited to do the acquisition and we had everything ready and we had the communications plan and we were all set to go and we had this plan to make the big splash announcement on a Monday and on the Friday afternoon prior the deal was cancelled. And it's devastating to go through that. And you know that not every deal is going to happen, but gosh, when you get that far in the process and you're that close to announcing, it's rare to get that far and then just have everyone walk away. So that was a tough one. One of my favorite stories that I like to share with people that I'm working with on these types of projects Especially as we're preparing for due diligence is one of the first deals I worked on. We closed the deal, we were getting ready to launch the integration of this business and it was an acquisition. I was so excited that I'd been working on this deal and I couldn't believe my career was going in this direction. So it was great. And I traveled to the headquarters for this business and the CEO brought me into his office and sat me down and said, wow, now that we've closed this deal, we've got to get some bonuses paid. And I said, oh, but I remember when we did due diligence, you said, you didn't have a bonus program. And he said, well, we don't have a bonus program, but we pay bonuses. And it was so eye opening to understand that we have to ask some of these questions in many different ways. And so it's not just do you have a bonus plan? It's do you pay bonuses? Have you given anyone an off cycle payment outside of their regular paycheck for any reason whatsoever? You know, we had to really rethink how we were looking at due diligence so that we didn't miss something that was so simple, yet maybe wasn't asked in the way that the person responded, with full disclosure. And to be fair, this information should have been shared and it's something that should have been part of their financials. And there are a couple different ways where this information could have been uncovered, not just in the HR checklist and it just simply wasn't. So it was one of those very early learning moments around how important communication is and being able to work with between buyer and seller to truly understand what we're looking for when it comes to due diligence.

Wow, those are Great examples. The 12th hour breakup and hitting the different angles so you don't miss details.

Yeah.

Sally, thank you so much for your time today.

Oh, you're welcome. It was my pleasure to be here. This is. This was really fun to do.

This was a blast. I look forward to doing some more stuff in the future.

That sounds great. Sign me up. I'm ready.

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