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M&A Due Diligence Checklist for HR Managers

     

When a company is deciding whether to acquire another business, it looks at a number of things to make its determination. Obviously, the financials of the target company are the primary area of interest, but there are a lot of operational aspects of the business that the acquiring company will want to learn more about as well. This generally takes place during the due diligence investigation, and it includes an examination of the target company’s existing employment structures and policies, as well as the actual employees. The human resources department of the target company will play a key role in gathering and furnishing this information for review during the investigation. Here is a list of items that the acquiring company will likely request:

Click Here to Download: the Due Diligence Checklist  

The Employee Pool

In the beginning phase, the acquiring company will seek to understand the target company’s employee demographics. This includes basic information such as the number of employees, their titles and roles, and where they are located in the event that there are multiple offices domestically or abroad or perhaps if there are remote workers.


Of course, the investigation may also require a review of any documentation relating to background checks conducted prior to hiring employees and subsequent performance evaluations and reviews for those individuals. The acquiring company will be trying to assess whether there are any evident employment-related risks, as well as if/how existing employees will factor into the company’s future after the merger or acquisition has been completed.


Terms of Employment

In addition to learning about the general and personal details of a company’s employees, the acquiring company will be interested in understanding the employment terms under which employees are obligated to the target company. This is particularly important if there are any unions or collective bargaining agreements covering some or all of the employees.


Contracts

Some companies have various employment agreements in place, and any individual contracts or special terms such as options or non-compete clauses will need to be disclosed. In addition, if there are any existing retention or severance agreements with personnel or any other special agreement that could have an impact on the target company’s bottom line, the acquiring company is going to expect to see them.

Compensation and Benefits

Depending on the acquiring company’s goal, it may or may not be interested in retaining the target company’s existing employees after the merger. Unfortunately, in many M&A transactions, there will not be a need to keep everyone, as the consolidation is usually meant to allow for streamlining operations. Of course, a lot of the decision over whether to keep people and who to keep will be based on the employees’ compensation and benefits packages.


Employment-Related Expenses

Salaries and wages are not the only employment-related expenses that the acquiring company will be interested in understanding. Any other expenses associated with the human resources department will be a factor in the acquiring company’s decision, whether it is the IT systems used for hiring and payroll or the cost of insurance, and thus all of this must be gathered and disclosed as well.


This is obviously a broad overview of the type of employment information that must be furnished during due diligence. It likely seems overwhelming and there are surely a lot of confidentiality and privacy concerns at stake. After all, employment agreements contain addresses, social security numbers, and dates of birth, the basic information needed to borrow money or open a line of credit. For this reason, it is wise for a company engaged in M&A talks to implement a highly secure virtual data room in order to safely store documentation pertaining to its employees. Then, when the company must divulge this information during the due diligence investigation, it can do so without compromising its employees’ personal data with the help of features like permissions-based roles, view only documents, and disabled printing.

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