HR and Benefits
M&A Due Diligence

HR M&A due diligence services

A Critically Important Process for Mergers and Acquisitions

HR due diligence is crucial in mergers and acquisitions. Some of the challenges that can arise, such as financial, legal, and even cultural issues, will reduce workplace morale and productivity if HR due diligence is not exercised. HR due diligence is so important because it helps acquirers get a better understanding of the company’s employment practices, liabilities, and culture.

This process helps in discovering HR-related liabilities and risks that may have an influence on the business’s financial performance after an acquisition takes place. For example, HR due diligence may reveal problems like a failure to comply with employment rules, inadequate HR policies and processes, employee conflicts, or potential legal challenges. These problems might cost the acquiring company a lot in terms of penalties and legal fees if they are not resolved before the purchase.

How Aspen HR Can Help

Aspen will provide the following services at your request:

due diligence employee handbook

Employee Handbook Review

Identify any areas to update the employee handbook

due diligence HR technology

HR Technology and Process Audit

Review opportunities to automate and improve existing HR processes

due diligence wage review

Employee Claims

Review of employee claims: EPL, wage, hour, etc.

due diligence hiring process review

Hiring Process

Review of job application, new hire packet, and process, to ensure compliance with updated laws and forms

due diligence FLSA classification review

FLSA Classification Review

Review all existing job descriptions & roles to determine exempt/non-exempt classification and give recommendations for rectifying any misclassifications

due diligence employee engagement

Employee Engagement

Analyze employee turnover, online employee review, and any other employee engagement reports

due diligence compensation review

Review Compensation of Key Positions

Provide compensation benchmarking, based on title, industry, and location

due diligence benefits review

Benefits Program

Provide a comparison and analysis of the target company’s employee benefit program

due diligence management review

Management Behavioral Scorecard

Provide complementary Predictive Index profiles and analysis of key leaders

Let us help you navigate the complexities of HR due diligence in mergers and acquisitions!

Reach out to our team today

HR Due Diligence Checklist for Acquisitions

When you’re acquiring or merging with a new company, it helps to have an HR due diligence checklist that can help guide you through the process and make better decisions. With a checklist, you identify HR challenges and opportunities and resolve them before they occur.

✓ Employee benefits

This involved reviewing the target company’s employee benefit program and plans with the goal of identifying areas to improve and reduce cost. Specifically, we will perform the following review;

  • Competitive benchmarking
  • Scenario analysis of medical plan options under our PEO or standalone
  • Identifying coverage gaps and recommending new benefit options to enhance employee retention
  • Total compensation statement review
✓ Talent management

This involves assessing the target company’s approach to managing and developing talent to determine its strengths, weaknesses, and potential areas for improvement.

Some important factors to keep in mind with talent management are:

  • Evaluating the target company’s recruitment strategies and hiring practices
  • Checking over development and learning programs
  • Identifying future successors to positions and reviewing skill gaps
  • Reviewing the target company’s retention strategies
✓ Company culture

This involves assessing the target company’s work environment, culture, and values to determine if they align with the acquiring company’s culture and values.

When analyzing company culture, look at:

  • Beliefs and values of employees
  • How engaged employees are in the workplace
  • Policies aimed at encouraging diversity
  • The work environment for employees
✓ HR compliance

This involves a thorough review of the target company’s HR policies, practices, and procedures to ensure that they comply with relevant laws and regulations.

Some examples of what’s involved in HR compliance are:

  • Examining the target company’s compliance with employment laws at national and international levels
  • Reviewing past litigation, settlements, and disputes
  • Ensuring full compliance with HR policies and procedures
  • Looking over employee classifications
  • Analyzing immigration compliance
✓ Organizational structure

This involves examining the target company’s organizational structure to understand how the HR function is organized and how it fits within the overall organizational structure of the acquired company.

When reviewing the organizational structure, some things to consider are:

  • Getting a better understanding of the target company’s reporting structure and hierarchy
  • Carefully looking at the responsibilities of the HR team members
  • Reviewing job descriptions and organizational charts
  • Taking a closer look at HR leadership and management

Potential HR Issues in Mergers and Acquisitions

Without appropriate HR due diligence, potentially damaging concerns may go unnoticed until the acquisition is complete, leaving the acquiring company responsible for dealing with them.

✗ Integration problems

When two companies that have completely different sets of HR policies and practices merge, issues can creep up quickly. With HR due diligence, these problems are identified so that the companies can merge more seamlessly.

✗ Legal complications

Legal fees, fines, and damages may be significant if potential liabilities in the HR department are not identified. For instance, the acquiring business can be held accountable for any employment law infractions made by the target company after the purchase.

✗ Cultural discrepancies

Cultural differences between the two merged businesses may result in post-acquisition HR problems. This can involve misalignment of the company’s values, workplace practices, and communication procedures, which can result in disputes among workers and a decline in productivity.

✗ Employee retention

When HR due diligence is deemphasized, employee retention may become a problem in the future. As an example, an acquiring company’s workers may be more inclined to leave, taking their knowledge and expertise with them, if the organization does not appropriately address employee concerns throughout the purchase.

Overcoming the Challenges in Mergers and Acquisitions with Due Diligence

Mergers and acquisitions can bring numerous benefits, such as increased market share, improved efficiency, and expanded offerings. But without HR due diligence, there can be a wide range of challenges.

HR due diligence can help prevent problems from occurring before they even arise. For example, if there are compensation inequities between employees, this can lead to many conflicts after an acquisition takes place. Analyzing and resolving these issues early on can reduce the turnover associated with these disparities.

Legal issues can be another challenge. Addressing violations in labor law or safety regulations can help prevent legal problems.

Frequently Asked Questions

Cultural conflicts, talent retention issues, compensation and benefit differences, legal compliance issues, and communication difficulties are just a few of the HR problems that can arise during mergers and acquisitions.

One of the main HR reasons for the failure of many mergers and acquisitions is the lack of attention to HR throughout the entire due diligence process and integration phase.

HR’s role in due diligence is:
  • Examine the target company’s HR practices/policies
  • Figure out what HR issues are present
  • Develop a strategy to address the issues