What should acquiring entities think about pre-deal? The short answer is, unfortunately, everything. Lists upon lists of "to-dos" abound - from things you need to think about before you do anything... to things that are typically overlooked in transactions. We thought we would add to this collection by offering up a list of our own: a list pertaining to people issues.
What follows are some core considerations (and certainly not an exhaustive list) that are critical to HR due diligence and can primarily be classified as pre-deal risk management issues. Many - under-funded pension plans, for example - represent potentially costly minefields for the acquiring entity.
Change in control arrangements - what outstanding contracts do senior management team/key executives have in place that will be triggered at closing?
Employee demographics - how many employees, how many retirees, how many non-exempt vs. exempt employees, contractors, leased employees, part-time employees does the organization have?
Compensation philosophy - how does it potentially vary from that of your organization? Are employees paid at market, above or below? What have median salary increases been for the last 3 years? What promises, written or verbal, have been made for the coming year?
Benefits/rewards - when compared side by side, how do all the compensation and benefits programs differ? Don't overlook programs, such as paid vacations, in estimating paid benefits. Also, make sure that you have inventoried the funding status of all benefit plans.
Data/HR Information Systems/Vendor management - how is HR run? Will the acquired company's system architecture and software link to yours? Take a close look at HR vendor contracts which can extend for multiple years.
Legal compliance - understand any pending litigation, status of compliance initiatives, results of recent audits pertaining to key federal labor law provisions, including, employment discrimination laws, etc. Seek the advice of a labour law attorney, as necessary.
Miscellaneous policies and procedures - does the acquired company have any internal programs or policies (sales incentive programs, for example) that are costly and extend for several years?
While not exhaustive, this list ought to provide acquirers with some of the most critical areas to walk through in the due diligence phase in order to avoid costly missteps later.