HR Due Diligence

Services

We provide full support for M&A transactions from an HR perspective. We check your HR policies and procedures generally meet standard legal compliance and provide a sound framework for managing staff.

Our due diligence services identify:
Transition costs such as severance, termination liabilities, and retention that should be reflected in the bid price.
Key talent risks, including mitigation strategies.

We also use structured in-depth interviews, career and performance are examined, and social interaction and behaviour are supervised in assessment centers or hearings.

HR Due Diligence includes

analysis of workforce composition;
assessment of top management;
analysis of economic and legal relationships with employees;
employment agreements, etc.;
review of HR records,
employment litigation and investigations;
and review of the compliance of HR policies and procedures with the applicable legislation.
Typically, this is accomplished by a forced ranking method to determine which employee's require further discussion and/or information and which employee's are either "C" player's (with marginal performance) or, due to the obvious duplication of some roles like Accounting, won't be necessary once the merger is completed.

In partnership with the CFO, the HR Lead will need to research and recommend the terms of severance agreements including the establishment of a budget, dates of notices, roles/accountabilities, pay, employee benefits and outplacement services.

We will advice on how to integrate/modify base salary structures, job families, incentive and variable pay awards, as well as whether one or both companies offer employee stock options.

Importance

The importance of the HR factor is growing for purchaser and seller.
Purchasers should consciously reduce risks in order to gain security:
Evaluate the management,
avoid the loss of key players,
and minimize integration costs.
Substantiate the value of your company also as a seller:
Realize the existing human capital,
make communication transparent,
and prepare the integration professionally.

While due diligence in other areas is already standard for M&A´s, many leading companies are only now recognizing the significance of a well-founded HR due diligence. Because: Approximately 60% of all mergers fail due to the fact that the human capital was not correctly evaluated in the previous contemplations!

Notes

The key to avoiding a meltdown during the post-merger integration is to get HR involved during the due diligence and negotiation, uncovering and resolving potential conflicts before it's too late.
Pension plans are a hot button any time, but even more so during a merger.
Review and analysis of the total compensation and health care benefits packages, as well as any/all vendors each company is contractually obligated to, the level of overall customer satisfaction and a detailed cost/benefit analysis.
Identify those benefits that the two companies provides differently, or don't provide at all, such as 401k, educational reimbursements, variable pay (bonus) plans, salary structure and pay rates, paid time off practices etc.,

After obtaining all of the necessary information, the HR lead should identify those areas that are different, or possibly in conflict, and recommend a plan to remedy those differences in a timely and efficient manner.

Cultural Assimilation is "the most important issue" for the management team to understand and acknowledge.
Cultural Assimilation:
differences, similarities and areas to be looked at including:
Corporate Mission,
Vision and Values,
Recognition & Rewards Programs,
Corporate Communications;
Environment – such as Dress Code, Office Hours, Performance Expectations and Cultural Norms.

Follow-up

Following the due-diligence efforts of the lawyers and accountants, the HR Project Lead is accountable for obtaining the necessary documents and cultural information to design a Project Plan for mapping the new organization into the existing one.

To ensure a smooth transition of people and processes (thus, minimizing the loss in worker productivity), this would require various documents and/or conversations regarding staff competencies (and the review of personnel records/ files), job descriptions, the current organizational chart and reporting relationships, as well as disclosure of any/all grievances, claims of unfair labor practices and/or employment related lawsuits.

Where does the "new" organization have redundancy and people performing the same or similar position? Determining which staff members will remain and which ones will be laid off is a decision that should be made as quickly as possible so that the integration of systems and processes can be achieved in a timely and efficient manner.

For those employee's in both organizations that have been identified as "key" stakeholders whose role is critically important to maintaining a productive work environment (i.e. IT staff), a retention bonus program is customarily offered to ensure that none of these individuals leave their current role before all merger and acquisition activities have been completed.

Purpose

With the primary objective focused on minimizing employee "angst" that would be accompanied by a decrease in productivity and an increase in turnover, it's essential that a thorough audit of all HR practices and systems being conducted.