Culture and employee retention are two of the most important aspects of any transaction. But for some reason, many teams often ignore the importance of the HR team. Failure to understand the target company's people and culture will result in a higher likelihood of failure. This article will explore HR's partnership with corporate development in M&A with Jeremy Segal, Executive Vice President, Corporate Development at Progress.
"If you start to ignore the things important to the target company, you're going to get off on the wrong foot" - Jeremy Segal
HR is a huge asset for corporate development teams and must be involved as early as possible. Including them, Pre-LOI, or informing them of the type of deals you're looking at will make a massive difference in the entire transaction.
The HR team also contributes significantly to the financial modeling of corporate development. During transaction exploration, the employee census must be transferred to HR as quickly as possible so they can track potential synergies or dis-synergies. Compensation gaps are one of the critical elements of an accurate financial model.
The goal of corporate development is to understand all the aspects of the business: how it runs and what makes it special and unique, which includes culture and leadership. Include the chief people officer during informal meetings such as lunch and dinner.
Lastly, corporate development must not be afraid to utilize third-party specialists for areas they lack enough people. The worst thing that could happen is for HR to burn out, which might cause mistakes along the way.
When working with corporate development, there are key behaviors that HR needs to have to be more effective:
There is nothing more important than the objective of the deal. The HR team needs to understand the deal rationale and listen to corporate development during meetings.
Being in the trenches, the HR team needs to make the target company feel like there a part of the process. They can't just focus on asking questions to understand the business; they need to step back and ask the people what's important to them.
The HR team plays a huge role in assessing the target company. They need to be assertive and voice their opinions and concerns regarding the business. Especially if the acquisition is not a good fit and employee retention is highly unlikely.
As mentioned before, HR is a massive input for the valuation of the business. However, asking too many questions might burn the target company out. There are also instances where the team doesn't have enough time to ask every question. Corporate development should work closely with HR to build their diligence list. The goal is to have enough information to evaluate the team and the business.
The HR team must approach corporate development and have them approve and prioritize the questions based on the deal rationale. The level of the due diligence process highly depends on the timeframe of the transaction; therefore, questions must be prioritized. Both teams must work together for a smooth transaction.