Human resources due diligence checklist for acquisitions
The human resources role in mergers and acquisitions can be one of the most important, aside from the financial aspect for transferring power to a new owner. Acquisitions involve finance and logistics, but an acquisition has deep emotional effects on the employees whose company is being acquired. In a human resources due diligence process, it's ideal if the company and its new owner work together to address all the items on the acquisition checklist.
Human Resources Department Expertise
Human resources practitioners involved in acquisitions due diligence should assess the type of human resources expertise available during this process. The level of expertise will determine how smoothly the transition can be handled. Assuming the new owner brings in a fully-staffed human resources department, it can take the lead in accomplishing due diligence. Assessing the level of expertise available to the acquirer also helps determine to what extent the new owner can retain employees.
Human Resources and the Organization
An examination of the role of human resources leadership within the organisation in another important factor in due diligence. When an acquirer attempts to include human resources leadership with executive leadership, there may be pushback from existing leadership. This is a philosophical shift the acquired company should embrace. If the acquirer has a strong record of success, including human resources on the executive board, chances are that success will transfer through new ownership. Therefore, an evaluation of the role of human resources, the company's human capital and inclusion of human resources in executive decisions is necessary to form plans for a transition once the acquisition is complete.
Human Resources Strategy
The acquirer's human resources strategy may differ greatly from the company being acquired. Human resources strategy may even form the basis for an acquisition if the production capabilities of the company are of tremendous value to the acquirer. Compare the two companies' strategic goals and determine which ones are compatible and the ones that may present a challenge. At the end of the day, however, the acquirer's human resources strategy should overrule but there can be some integration of the two.
Access to employee opinion surveys will shed light on the workplace climate. If employees feel undervalued and unappreciated, there may be obstacles during the acquisition which need to be addressed immediately. An acquisition can be an emotional event for employees who devoted their careers to a company they believed would remain successful throughout their work life. Given the opportunity, a post-acquisition employee opinion survey may be necessary to identify specific hurdles the acquirer must overcome. Developing a presence through on-site visits and interaction with employees may also soften the blow of being acquired by another employer.
Reviewing the employee relations files is essential. The company's employee relations files should contain documents concerning all employee complaints, informal and formal. In a publicly traded company, the annual report will also contain information about potential liabilities due to lawsuits for unfair employment practices and any other claims by employees, vendors, suppliers and customers. Liability for employee relations issues should be carefully reviewed to anticipate the types and amounts of potential losses the company may suffer.
Significant HR Input
The role of human resources during an acquisition cannot be overlooked. When the value of human capital supports an acquisition, human resources leaders must be involved from the start. According to consulting giant Deloitte, the human resources is essential during a merger or acquisition. The company states that "as a contributor to formal due diligence, HR validates all of the preliminary work already under way in the project analysis, identifies potential risk to the business plan, identifies liabilities, formalises an integration framework for HR infrastructure, engages communication efforts, and provides organizational stability for the company."
- Deloitte: Human Resources Management Handbook for Acquisitions
- Entrepreneur magazine: The Auditor's Role in Mergers and Acquisitions: Companies Often Underestimate the Importance of Risk Management During M&A Processes
- Towers Perrin: M&A Due Diligence -- The 360-Degree View
- The Siburg Company LLC: 100-Day Employee-Integration Plan for Mergers and Acquisitions