Jeannie Edwards, MWH Global

Due diligence around human resources is critical to successful mergers

Failure to highlight critical HR issues during merger due diligence can put investment at risk, says Jeannie Edwards.

Due diligence undertaken by companies thinking of merging is typically very dependent on the financials, the projects, backlog, pipeline, IT facilities and the legal aspects. But it must also include due diligence done by human resources.  

In an industry where the raw material is people, who have a free choice and an inalienable right to operate in whichever company or industry they choose, understanding the factors influencing that raw material’s decision to stay or go has a direct impact on the success or failure of the investment. 

The likelihood of retaining people can be assessed by understanding the culture of the workforce as well as a desk study to understand the profile of the organisation’s workforce and its stability. 

The major risks should be identified and any potential deal breakers highlighted. Generally, but not always, these are related to culture, profiles including staff turnover as well as the cost of benefits and pensions.  

Understanding the stability of the workforce, what entices people to stay and drives people to go, is critical to a good due diligence. Analysing staff turnover, length of service, and other metrics helps to form a picture of not only the stability of the workforce but the style of management.  

A very low turnover might indicate a workforce too comfortable and resistant to change. A very high turnover might indicate poor leadership. It’s less likely to be related to poor pay and benefits; generally pay and benefits loom large only when other issues are involved.

Whether the deal is TUPE or not, the most important aim is to reap reward from the investment. It is of the highest importance then to identify the issues likely to emerge after integration.  

It doesn’t matter if these risks do not materialise, but it does matter if they do and hadn’t been anticipated.  

The risks must be quantified. “People will want to feel part of this company and feel valued” will mean little to decision makers. However, quantifying the potential loss of intellectual capital and corporate memory related to key individuals or the potential impact of the other risks identified enables more informed decisions.

Failure to highlight such potential issues puts the investment at risk. If these risks are not understood before the deal is struck then they can’t contribute to the “go/no-go” assessment, nor can the price be adjusted to mitigate any likely effects.

Jeannie Edwards is HR Director at MWH Global and chair of the ACE HR Task Group