Longer Reads

How working from home became a factor in private equity M&A

Due diligence needs to identify changes to employment patterns such as hybrid or WFH practices.

1 minute read

Published 28 April 2023

Authors

Share

Key information

One of the many legacies of the COVID-19 pandemic is the fact that it supercharged the acceleration of many companies towards hybrid working practices. Many companies had no option but to embrace the “new normal” of trying to do business whilst the majority, if not all, its staff worked from home. Having survived the painful, but necessary, constraints of lockdown, many businesses are still working out the optimal way to operate. However, crucially the crucible of COVID created the opportunity for hybrid working to achieve proof of concept, and it is likely that many businesses will continue to give their staff the ability to work in a more agile manner.

So what does this mean for private equity deals, when key to the assessment of many opportunities is a thorough understanding of how the staff of a target are performing, and the creation of a pathway towards improved performance. The hope is that by replacing presenteeism with productivity as the key metric, businesses will continue to thrive, the fear is that without more sophisticated tools to drill into performance it is going to be difficult to precisely gauge what specific staff bring to the table. Numbers have always been a blunt instrument when assessing individual performance, and hybrid working may further obfuscate the information that lies behind the raw data. In essence, when performing due diligence on the staff of a target it will become even more important that buyers have a deep understanding of where the centres of value creation sit in an organisation, and how the performance of those centres can be optimised.

From an employment perspective, buyers will need to establish the true working patterns of target employees, especially if the seller has not taken the step to put flexible working on a contractual footing. The due diligence process should identify where employment contracts have effectively been varied by the conduct of the seller or employee. Due diligence should also highlight any flexible working requests and requests for reasonable adjustments around working patterns. It should also expose any failures by the seller to offer flexible working and reasonable adjustments, and can help to identify areas of concern and potential liability.

If TUPE applies, buyers will need to remember that they may not be able to harmonise the contractual terms of target employees with their own. Buyers will need to factor in the additional managerial time required to deal with a multitude of working patterns, as well as the associated administrative and logistic issues.

Hybrid working may also complicate a seller’s ability to comply with its consultation obligations under TUPE. Buyers will want to assess the risk of non-compliance, and factor it in when seeking warranties and indemnities.

There are also softer issues to consider. For example, how best to integrate and manage two workforces with differing working patterns and cultures. Buyers will need to ensure managers have the tools they need to collaborate and connect with transferring staff who they may not share an office with. They will need to ensure that ‘proximity bias’ doesn’t creep into the decisions of office-based managers who give preference to staff they already know and can physically see, and not to the transferring remote workers. Mis-handling the transition could see talent moving elsewhere, thereby diminishing the value of the target business.

For more information, visit our Private Equity page.

This article was first published in the Private Equity News (PEN) on 21st of April 2023.

Related latest updates
PREV NEXT

Related content

Arrow Back to Insights

Longer Reads

How working from home became a factor in private equity M&A

Due diligence needs to identify changes to employment patterns such as hybrid or WFH practices.

Published 28 April 2023

Associated sectors / services

  • Employment law for employers
  • Private Equity

Authors

One of the many legacies of the COVID-19 pandemic is the fact that it supercharged the acceleration of many companies towards hybrid working practices. Many companies had no option but to embrace the “new normal” of trying to do business whilst the majority, if not all, its staff worked from home. Having survived the painful, but necessary, constraints of lockdown, many businesses are still working out the optimal way to operate. However, crucially the crucible of COVID created the opportunity for hybrid working to achieve proof of concept, and it is likely that many businesses will continue to give their staff the ability to work in a more agile manner.

So what does this mean for private equity deals, when key to the assessment of many opportunities is a thorough understanding of how the staff of a target are performing, and the creation of a pathway towards improved performance. The hope is that by replacing presenteeism with productivity as the key metric, businesses will continue to thrive, the fear is that without more sophisticated tools to drill into performance it is going to be difficult to precisely gauge what specific staff bring to the table. Numbers have always been a blunt instrument when assessing individual performance, and hybrid working may further obfuscate the information that lies behind the raw data. In essence, when performing due diligence on the staff of a target it will become even more important that buyers have a deep understanding of where the centres of value creation sit in an organisation, and how the performance of those centres can be optimised.

From an employment perspective, buyers will need to establish the true working patterns of target employees, especially if the seller has not taken the step to put flexible working on a contractual footing. The due diligence process should identify where employment contracts have effectively been varied by the conduct of the seller or employee. Due diligence should also highlight any flexible working requests and requests for reasonable adjustments around working patterns. It should also expose any failures by the seller to offer flexible working and reasonable adjustments, and can help to identify areas of concern and potential liability.

If TUPE applies, buyers will need to remember that they may not be able to harmonise the contractual terms of target employees with their own. Buyers will need to factor in the additional managerial time required to deal with a multitude of working patterns, as well as the associated administrative and logistic issues.

Hybrid working may also complicate a seller’s ability to comply with its consultation obligations under TUPE. Buyers will want to assess the risk of non-compliance, and factor it in when seeking warranties and indemnities.

There are also softer issues to consider. For example, how best to integrate and manage two workforces with differing working patterns and cultures. Buyers will need to ensure managers have the tools they need to collaborate and connect with transferring staff who they may not share an office with. They will need to ensure that ‘proximity bias’ doesn’t creep into the decisions of office-based managers who give preference to staff they already know and can physically see, and not to the transferring remote workers. Mis-handling the transition could see talent moving elsewhere, thereby diminishing the value of the target business.

For more information, visit our Private Equity page.

This article was first published in the Private Equity News (PEN) on 21st of April 2023.

Associated sectors / services

  • Employment law for employers
  • Private Equity

Authors

Need some more information? Make an enquiry below.

    Subscribe

    Please add your details and your areas of interest below

    Specialist sectors:

    Legal services:

    Other information:

    Jurisdictions of interest to you (other than UK):



    Article contributor

    Enjoy reading our articles? why not subscribe to notifications so you’ll never miss one?

    Subscribe to our articles

    Message us on WhatsApp (calling not available)

    Please note that Collyer Bristow provides this service during office hours for general information and enquiries only and that no legal or other professional advice will be provided over the WhatsApp platform. Please also note that if you choose to use this platform your personal data is likely to be processed outside the UK and EEA, including in the US. Appropriate legal or other professional opinion should be taken before taking or omitting to take any action in respect of any specific problem. Collyer Bristow LLP accepts no liability for any loss or damage which may arise from reliance on information provided. All information will be deleted immediately upon completion of a conversation.

    I accept Close

    Close
    Scroll up

    Find out about Business

    Find out about Dispute Resolution

    Find out about Individuals & Families

    Find out about Real Estate

    We are Collyer Bristow - The law firm for those that
    value individuality, creativity and collaboration.

    Legal & Pricing info Regulatory InformationAccessibilitySitemapPricing and service information

    Listen to our latest podcast: Budget Miniseries: Impacts on Families with US Connections (Part 1)

    Listen to our latest podcast: Cracking the Code on Directors’ Service Agreements

    Read our latest article: Economist, or just economical with the truth? How can employers respond to ‘fake claims’ on a CV?

    Listen to our latest podcast: Autumn Budget 2024 Special (Part 2)

    Read our latest article: ‘Promoting the integrity of the register’: The new Companies House approach to non-compliance

    ExpandNeed some help?Toggle

    < Back to menu

    I have an issue and need your help

    Scroll to see our A-Z list of expertise

    Get in touch

    Get in touch using our form below.



      Business Close
      Private Wealth Close
      Hot Topics Close