Companies see huge benefits from involving HR in due diligence for M&A

US dealmakers expect an uptick in M&A (merger and acquisition) transactions as leaders are making moves for stability and growth. Talent and culture are increasingly more critical as these transactions focus less on assets and more on capabilities.

When should HR be involved in M&A?

Human resource departments are inevitably a big part of any M&A, facilitating the combination of teams, systems, and software. Often times though, decision-makers don’t involve HR until after the transaction is complete. This can leave leadership with big blind spots and put HR and employees at a disadvantage come crunch time.

Forward-thinking leaders recognize that talent and culture are a key part of M&A, and they know HR is a key part of due diligence. It’s imperative that companies follow a thorough diligence process to understand how the leadership, talent, and core cultural traits of the target helped it produce results in the first place.

Companies that invest time and effort to gain a strategic HR understanding during the diligence process realize a greater degree of value and growth.

What Role does HR play in M&A?

HR has four critical roles in any M&A transaction:

#1. Know Where Risk & Opportunity Hide

HR will uncover people-related financial risks by identifying and assessing:

  1. Compensation, benefits, and insurance liabilities
  2. Employee-related compliance liabilities
  3. HR operations and technology synergies
  4. Cultural, organizational structure, and talent risks

#2. Culture Fit and Strategy Alignment

Strategic HR has the responsibility to protect the culture and company's focus by making sure the M&A transaction aligns all constituents with the vision and values of the combined entity. Strategic HR’s role starts and ends with ensuring results are realized. Specific action programs include:

  1. Assess Organizational Fit: Perform SWOT on the people capabilities and competencies
  2. Facilitate Change Management: this requires a proven, pragmatic methodology that generates results
  3. Provide Proactive Communication:
    1. Ensure the Message (Vision/Values) is heard and understood
    2. Keep communication going in all directions (upwards, downwards, across departments, across organizations)
    3. Establish Meeting/Communication Standards, Practices, and Expectations
    4. Ensure Goal Setting, Performance Reviews, and Accountability
  4. Update and Align Policy, Programs, Practices, and Philosophies

#3. Workforce Planning

HR will evaluate the combined entity’s workforce to determine supply and demand imbalance by role and location, ascertain current and future gaps, and create and implement a Leave Management and/or Staffing Plan as required. In fact, HR is responsible for evaluating and modeling the current and future people costs of the transaction. Specific Workforce Planning components include:

  1. Scenario Planning Turnover and Recruiting
  2. Succession Planning
  3. Retention of key people and separation of redundant staff
  4. Development of a total rewards strategy for the combined companies

#4. Organizational Development

The new leadership team will need to work together on a daily basis, despite cultural and personality differences, power issues, and other barriers. HR’s role is that of the facilitator enabling team members to work together constructively. Specifically, HR will

  1. Deal with power and cultural issues as well as resolve conflicts
  2. Help employees agree on priorities and focus on tangible results
  3. Identify and develop people capabilities and competencies
  4. Facilitate initiatives and manage the learning processes, knowledge sharing, and knowledge repositories

At the end of the day, M&A success entirely depends on the performance of the people, and strategic HR gives you the ability to do all of the above with speed.

We’re here to help

Unless you are involved in M&A every day, it’s hard to anticipate what you don’t know. Our strategic HR consultants have helped many companies successfully merge and transition personnel. We’re here to help leaders get the maximum value out of any M&A transaction — without skipping a beat.

We’d love to learn more about your M&A HR needs. Send us a message or call us at 512-900-2152 to get the conversation started.