Global mergers & acquisitions (M&A) activity continues to maintain the positive momentum achieved at the start of 2024 heading into 2025. In addition, with the end of election uncertainty, M&A deals in the U.S. are expected to surge in 2025. For many companies, including first-time buyers, this will present an opportunity to reconsider M&A strategies in U.S. markets.
When engaging in M&A deals in the U.S., understanding the intricate landscape of employment standards, labor dynamics, employee benefits/compensation and regulatory requirements is crucial. Here’s an overview of key HR M&A considerations that acquirers should be aware of when navigating U.S. M&A deals.
01
The at-will employment framework in the U.S. allows employers to terminate employees “at-will” or for nearly any reason, as long as it isn’t in violation of contractual agreements or other federal and state laws. This flexibility can be advantageous for companies looking to streamline operations or restructure employment agreements post-acquisition. From the employee perspective, the at-will employment framework also provides significant latitude for employees to move between employers with minimal limitations. Employers therefore must be equipped with succession planning and change, culture and communications strategies to effectively attract and retain key employees and critical talent during and after M&A deals.
02
While unionization rates across the U.S. are generally low, certain industries have higher levels of organized labor. In unionized environments, collective bargaining agreements dictate the terms and conditions of employment, affecting wages, benefits and work conditions. Acquirers must assess existing agreements and term lengths and their potential impact on operational flexibility and employee relations. Acquirers should also understand that requirements for unionized groups may extend to non-unionized populations, especially where there may be a desire to align wage or other benefits programs. While there are no statutory consultation requirements with unions in the U.S. during a deal, Labor agreements may have applicable provisions and informing the union is still a common and recommended practice.
03
Employee benefits play a significant role in attracting and retaining talent in the U.S. and are often one of the largest employee related costs (according to WTW’s 2024 Global Benefits Attitudes Survey). Organizations typically offer extensive benefits packages, including healthcare, which is highly valued by employees and often involves shared costs between employers and employees. Additionally, voluntary benefits — ranging from supplemental insurance to wellness programs — are increasingly popular.
Retirement plans are dominated by 401(k) defined contribution plans, though defined benefit pension plans still exist. When evaluating these benefits during a deal, it’s essential to identify any material liabilities associated with defined benefit pension plans, especially in cases of multiemployer arrangements.
Ultimately, when completing a deal, companies must decide whether to maintain or replicate current benefits or offer new benefits post-acquisition.
04
Compensation levels in the U.S. are highly dynamic, driven by factors such as cost-of-living, competition for talent in major urban centers and a lack of employee availability due to low unemployment. Employers must remain competitive to attract top talent, often adjusting compensation packages to align with market demands. Understanding local market conditions and industry standards is vital for acquirers who seek to continue a presence and remain competitive within the U.S. Other pay-related trends have also more recently impacted compensation practices, including a focus on pay equity and pay transparency.
05
Executive compensation in the U.S. is particularly complex and warrants careful scrutiny during deals as there may be substantial costs triggered due to executive employment agreement provisions. Acquirers should examine executive employment agreements closely, especially for provisions related to severance upon a change in control. Furthermore, attention should be paid to the terms governing the acceleration of equity long-term incentive plans and pay-for-performance metrics. It’s also common to give key executives separate retention agreements to ensure continuity during the deal transition and beyond. Lastly, first-time buyers should be aware that executive compensation rates in the U.S. are very high relative to non-U.S. markets, and therefore complex situations can arise when developing post-deal reporting structures.
06
The U.S. labor market is characterized by a diverse talent pool, with regional concentrations based on industry demands. More recently, the rise of hybrid working models has reshaped workplace dynamics across the U.S. with many employees now expecting flexible or hybrid working arrangements. However, while many employees have embraced these work arrangements, there’s a growing trend toward employers requiring an in-office presence at least a few days per week. Acquirers must understand the geographic distribution and working arrangements of employees when considering any policy changes post-acquisition that could impact the culture and morale of the workforce.
07
In addition to federal regulations, U.S. states and municipalities impose various employment regulations, including minimum wage laws, leave policies, pay transparency mandates and notice requirements in the event of larger restructurings. Acquirers must take these local laws into consideration post-acquisition, as they vary significantly across states and may impact labor costs and operational practices. Some well-known state-specific examples include: (1) New York’s Worker Adjustment and Retraining Notification (WARN) Act, which requires employers to follow notice requirements in advance of mass layoffs or plant closings; (2) Colorado’s Equal Pay for Equal Work Act, which sets pay transparency requirements for job listings and promotions; and (3) California’s rules surrounding paid sick leave policies and the payout of accrued vacation at the time of an employee’s termination.
Understanding the nuances of HR M&A deal dynamics in the U.S. is essential for acquirers looking to navigate M&A deals effectively. By comprehensively reviewing workforce employment, labor trends, employee benefits and compensation practices and regulatory requirements, companies can better position themselves for successful integration and growth post-acquisition.
