By Nate Olsen, President, BestFit PEO Solutions. Houston, TX.

Successful mergers and acquisitions depend on more than just financial metrics and productivity integration. The human element of a newly acquired company often determines whether a deal creates lasting value or becomes a costly lesson in the importance of employee retention. When company morale drops significantly post-acquisition or when many staff members fear for their future, key talent often walks out the door, taking institutional knowledge, client relationships, and competitive advantages with them.

The statistics following acquisitions are noteworthy. A recent EY study shows the average employee turnover after a merger is 47% within the first year, and 75% within three years following the deal. For private equity firms focused on maximizing portfolio company value, these losses directly impact projected profits.

One smart solution to preserve employee morale and safely navigate the mergers and acquisitions transition would be to partner with a Professional Employment Organization (PEO). A PEO with expertise in this field can facilitate the most difficult aspects of mainlining morale and reducing turnover following M&A.

The Hidden Costs of Poor Post-Acquisition Morale

Employee uncertainty following an acquisition frequently manifests as decreased productivity, increased absenteeism, and a talent exodus that can derail anticipated company plans for growth. When employees question their job security, benefits continuity, or their role in the new organization, they become flight risks. Replacing departed employees costs an average of 50-200% of their annual salary, while the loss of valuable institutional knowledge can take years to rebuild. The very employees who made the target company attractive are now the ones most likely to leave if the transition isn’t managed effectively.

How PEOs Can Facilitate Smooth M&A Transitions

PEOs serve as strategic partners that streamline the complex human resources aspects of mergers and acquisitions. By providing comprehensive HR infrastructure and expertise, PEOs help private equity firms navigate workforce integration challenges while maintaining employee confidence throughout the transition process.

• Seamless benefits integration: PEO solutions eliminate the uncertainty employees often face regarding benefit changes during acquisitions. Instead of experiencing coverage gaps or benefit downgrades, these powerful HR partners can help employees gain access to enhanced benefit packages through the PEO’s collective buying power. This improvement in their employment situation helps retain key talent and demonstrates the acquiring company’s commitment to employee welfare.

• Unified HR administration: During acquisitions, integrating disparate HR systems often creates administrative disruptions that frustrate employees and management alike. PEOs provide unified payroll, benefits administration, and compliance infrastructure that can immediately support the combined workforce. This eliminates the typical post-acquisition chaos of system integration while ensuring employees receive consistent support throughout the transition.

• Compliance and risk management: Multi-state acquisitions bring complex regulatory requirements across different jurisdictions. PEOs maintain expertise in federal, state, and local employment law, ensuring the combined entity remains compliant with all applicable regulations, shoring up any potential risks in the process and beyond it. This reduces legal liability while allowing management to focus on operational integration and future direction.

Maximizing Value Through Early Implementation

The timing of involving a PEO in the M&A process proves critical for successful transitions. Initiating the PEO partnership early, rather than post-closing, allows for a thorough workforce assessment and seamless day-one integration. This proactive approach demonstrates to employees that their interests and concerns are prioritized throughout the acquisition process.

Effective and transparent communication amplifies the positive impact of a PEO partnership. PEOs can even assist in drafting communications to employees to assuage any concerns or answer any HR questions. When employees understand that the acquisition brings enhanced benefits, improved HR support, and expanded professional development opportunities, the transition becomes an opportunity, rather than a loss. This shift in perception directly supports talent retention and maintains productivity during this sensitive integration period.

The Bottom Line

For private equity professionals, PEO solutions provide added value protection during the post-acquisition period. By maintaining company morale and retaining key talent through dedicated HR support and comprehensive benefits administration, PEOs help ensure that human capital remains a value-driving asset throughout the ownership period.

In a market where talent retention directly impacts portfolio performance, partnering with the right PEO solutions provider creates strategic value and positions portfolio companies for successful outcomes.

Nate Olsen is President of BestFit PEO Solutions, bringing nearly three decades of PEO industry experience to his role. He has held leadership positions with Insperity, ADP TotalSource, and TriNet, and holds an M.B.A. from Pepperdine University.

BestFit PEO Solutions helps businesses partner with the right PEO for their needs. With over 100 years of combined industry experience, the company provides customized financial analyses to help clients navigate the complex PEO marketplace of 500+ providers, enabling businesses to make informed decisions that can increase revenue and drive long-term success.

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July 2025