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HR, being an entity that is at times not given a seat at the table, and may not be included in the M&A discussions till later on in the M&A process. Usually ends up having to conduct DD later on in the game, however, the way a company conducts is HR practices including policies, compensation, in addition to labor relation issues that may have current or longterm large financial liabilities will create a lot of thought behind the matters such as risk, final selling evaluation, and plans for future integration, synergies, and corporate branding. When do you believe HR should be invited to the table to discuss the appropriateness of M&A’s ?
Great question. In our company, we have HR involved once an LOI is signed. We believe that the finance & legal aspects are easily looked at butt the people part is just as important and should not be overlooked. Given that most deals involve people to make the company successful, it can be detrimental to the success of an acquisition if the people part is not valued.
Since human capital is important in virtually all businesses and industries, HR DD should commence at the same time with all the traditional DD e.g. financial, tax and legal DD. However, this is sometimes neglected, and you have rightfully pointed out that HR DD is performed at the tail end of the deal.
I believe that HR DD should commence post signing the LOI and parallel to the preliminary DD by the buyer, in case a vendor DD is awaited, and prior to the comprehensive DD conducted by the buyer simply because it takes time to get into people’s minds and hearts.
Agree, I launch the HR workstream at the same time as the others. Frankly, I see the HR DD as a heavier lift than some of the other workstreams so would not want to delay. We dig into compensation structures, benefits package comparisons, titles/job functions, transitioning payroll, any existing liability etc, many topics. All of this work takes time and it is important to get right. I think it would be a mistake to not engage HR at an early stage in the diligence process.
In my company, HR will be involve prior to signing the LOI. But I have seem deals that only involve the HR team towards the end of the deals (especially for small companies, where compensation, structure, etc will not have any significant impact to the deal).
I agree with Scott! The HR DD (for running it myself) can be quite heavy as there are many aspects to deepdive into. With my colleagues, we have agreed that there are no easy, small or straightforward deals in terms of HR and it can become quite costly adn time consuming if DD is done faster or in less depth.
in my opinion HR DD should commence post signing LOI because I think knowing the key employees of the target firm in early stage is very crucial to ensure the continuously of the business. Moreover, conducting HR DD specially in early period will give time for the buyer to comprehend the structure of the organization which will be advantage for the buyer to make employee retention scheme.
The work of an HR team begins well before the closing date of an M&A. HR plays a critical role in the due diligence process, looking at the intended company’s contracts for both vendors and staff while hunting for any red flags that might be detrimental to the deal.
I agree with Hamood. Hr team should participate even from the LOI. In my experience, we have found issues to solve related to, for instance, severances to pay to workers that are not aligned with the organization. During a HR DD, these people should have been identified and their severances (known of course by the seller of the company) taken in account in the negotiation.
regards
César Otero
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