The HR Practitioner’s Guide to M&A Due Diligence
“If you're pulling HR in after you announced the deal, then you're missing a lot of opportunities to help realize deal value earlier on in the process.”
HR Due Diligence
You have got to look at the people aspect sooner in M&A deals. Most organizations don’t pay enough attention to the people aspects of the deal at the right time. HR practitioners don’t usually get involved in the deal after the deal has already been announced, and then they’re playing catch up. When this happens, there will be limited opportunities for HR to do any kind of mitigation.
Post Diligence Huddle
M&A practitioners should start using a post diligence huddle. This is a meeting with everybody who’s part of the deal team with the sole purpose of asking 2 questions:
- Who are the people that we absolutely need to retain?
- How are we going to break the business during integration? (Culture)
Aside from the traditional way of extracting information from the target company, you can now use online tools to go through public information. You can look at the company’s website and understand what they say about themselves, and what are their core competencies. You can look at their press release, about us page, and look out for lawsuits. If they are in big enough trouble, you will be able to see it on the news.
6 Major risks
- Financial Risk - Look for violations that might result in massive back wages.
- Operational Risk - Look for things that will dramatically change once being acquired by a large company, and how will they thrive in that new environment.
- Compliance Risk - Are there going to be violations in terms of following certain government rules and regulations regarding labor standards that will result in a fine or penalty.
- Leadership Risk - Do a better job of assessing the leader of the organization. He can make or break the organization post-close.
- Culture Risk - How changes in the way the work is done are going to affect the combined company’s ability to deliver products and services to customers.
- HR Function Risk - mind your own house. You need to take care of your own function from the basic to the advanced stuff.
Losing Key people
There is a triple bump that happens when you lose key people. The first bump is when the announcement happens and you end up losing your “A” players. Your “B” players will now try and fill the shoes of the “A” players. The second bump happens when your “B” players are so demoralized and demotivated they end up underperforming. And then the final bump happens because the organization now has such a bad reputation that you can't recruit new talent.