Someone asked us recently “how often are you involved in the deal before diligence starts?”
Our answer: “Not as often as we should be.”
The individual then described a situation where late in the process an Affordable Care Act issue was identified and they recognized how beneficial engaging benefits and compensation counsel earlier would have been.
Too often, benefits and compensation are left in the background until late in the diligence process. The people focused questions involving employee benefits, compensation, and employment not asked at the forefront, and then days before closing you learn at least one of the following:
The Target has benefit plans that could be considered an ERISA controlled group or an affiliated service group. But you didn’t anticipate such issues and now you’re stuck with a headache late in the process.
The Target’s 401(k) plan has operational errors, and you now need to terminate the plan or correct the errors before closing.
A pension plan is underfunded or withdrawal liability exists.
The Target has independent contractors that should have been classified as employees and is now considered an Applicable Large Employer according to the Affordable Care Act.
An accidental MEWA exists and Form M-1s have not been filed.
You need a 280G shareholder cleanse vote but do not have the documents prepared.
You want to retain Target employees and learn they hold stock options and now you are not prepared to offer replacement equity to retain.
Identifying such problems late in the process slows down, and may even cease, deal momentum. Working with the parties and applicable governmental bodies to correct these issues often takes time.
Don’t delay - engage your benefits counsel early to continue deal momentum.
Reach us via LinkedIn or email at: info@momentumadvisors.law