Your M&A due diligence HR checklist

The role of human resources during the due diligence process is critical to enable organisations to identify any important people issues that may be ‘deal breakers’ for a M&A to go ahead.

Involving HR from the start ensures an effective due diligence process is undertaken on the human element, and will reduce any imminent risks during the integration process.

The strongest and most effective M&As are those that take a holistic approach to due diligence, looking at everything from finance, commercial and operational data, to strategy, people and culture.

As part of the due diligence process, effective human due diligence should cover an in-depth review of all HR operational risks.

These include:

• Legislative requirements to ensure alignment to NES and applicable industry awards
• Review of employment agreements and ‘special’ arrangements
• Review of all HR processes and reporting requirements
• Review HR policies and procedures

• Review of any current or historic employee disputes
• Identify performance current issues and trends on historic performance issues
• Review performance management framework and performance culture
• Analysis of employee turnover

• Review leadership structures
• Identify leadership capability and alignment to organisational values
• Identify barriers to strategic success through the review of culture surveys, employee feedback and exit interviews
• Review organisational values and alignment to culture

• Analysis of current remuneration structures and policies
• Review compensation banding against role and responsibilities
• Review of reward programs including STI and LTI program

• Evaluate recruitment and retention strategies
• Identify training and development strategies and costs

An effective human due diligence review is imperative in preventing the common pitfalls of M&As, such as:

• Significant loss of talent immediately following announcement of the change
• Internal conflict due to unaddressed differences in decision-making styles
• Decreases in productivity and market share
• Loss of or significant damage to organisational culture and brand due to lack of cultural alignment and clarity (and communication) on purpose of acquisition and business strategy etc.

Human due diligence lays the groundwork for smooth integration. Done early enough, it also helps acquirers decide whether to embrace or kill a deal and determine the price they are willing to pay.