The top rewards-related issue during a merger and acquisition transaction is medical benefits, a key area of focus in 92% of projects analyzed by Mercer for its first People Risks in M&A Transactions report.

The report, which included the analysis of nearly 450 transaction assignments and some 300 M&A professionals, found that about 80% of the transactions included an evaluation of defined contribution pension plans and almost 20% included an evaluation of defined benefit pension plans.

Almost 50% of respondents said they’re willing to consider taking on pensions and post-retirement medical obligations following an M&A.

Read: Mergers and acquisitions to increase despite global volatility

“Understanding the pay and benefits practices relative to industry benchmarks for all components of rewards is key during diligence,” said the report. “This includes base pay and total cash to market, internal equity, incentive metrics/targets, and non-cash rewards.”

Additional findings of the report include:

  • 89% of the companies surveyed included talent issues among their top three integration challenges.
  • 64% cited senior talent acquisition and retention.
  • 54% of respondents said they engage advisors to evaluate human capital-related risks.
  • 34% said they’re spending more effort on HR issues than in the past, while 65% said they are spending about the same.
  • 55% of those surveyed report that talent challenges will remain a significant HR issue in future M&A transactions.
  • 63% said they track HR synergies after an M&A deal.

Read: Group benefits issues during mergers and acquisitions

“People risks in M&A transactions are manifested by individuals’ inability to manage uncertainty and embrace change — which, in turn, results in declining business performance and the potential loss of transaction value,” wrote the authors of the report, Jeff Cox, senior partner, global M&A transaction services leader, and Chuck Moritt, senior partner, North American multinational client leader.

“Poorly executed integrations, failure to consider culture and organizational fit, and lack of clarity in employee communications are prime examples of people risks that can severely undermine deals and destroy value.

 “The magnitude of these risks means that companies must consider the people issues at the outset if they hope to protect the value of the transaction. Our findings show that organizations that bring the same discipline and rigor to addressing the human capital investment and people issues as they do to managing balance sheet risk and the other key operational aspects of a deal realize the most value from the transaction.”

Read: Employee benefit plan design: 5 reasons for change

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