1. clarify the acquisition strategy.
The starting point for any strategy-oriented HR due diligence is to clarify the acquisition strategy. For example, does this serve the long-term knowledge transfer from the target company or is it a restructuring strategy? Of course, mixed integration strategies are also conceivable, depending on the respective business unit.
In any case, it is very important to clarify the acquisition strategy in advance. Only on this basis can the objectives of HR due diligence be specified.
2. Analyse the company organization.
Once the objectives of HR due diligence have been specified, the next step is to analyse the company organization. Against the background of the acquisition strategy, the importance of the individual company divisions must be worked out. In addition, appropriate action strategies for HR due diligence in particular and due diligence in general must be developed and coordinated.
The first step is to take a look at the process organization: Are the distribution of tasks and processes organized efficiently? And how is the company communicating? The latter in particular is an indicator of the maturity level and weaknesses of the organization as a whole.
On the other hand, this raises the question of the extent to which redundancies exist or whether there is a lack of structures and whether there are weaknesses that may need to be eliminated through costly investments after the takeover.
3. Evaluate HR key figures.
In order to get a picture of the employee structures, you should definitely evaluate the existing HR key figures. Such an analysis not only enables a more precise assessment of employees. Rather, you can draw conclusions about the quality and maturity level of HR controlling and the HRIS software used from the time frame in which the HR key figures were collected - an important data point for evaluating the target company and assessing potential risks.
4. Identify top performers.
After you have determined the company organization, including the distribution of tasks and the process organization, the next step is to identify the top performers. Typical questions that need to be answered include:
- Who are the key players?
- What tasks do top performers have and how critical are they to success?
- Are the top performers' experience and potential being used correctly? Or is there a need for development and perhaps even an expectation of development?
- Has there been a high level of churn recently? And if so, what are the causes of staff turnover? And how could you counteract this in the future?
You should also determine during the acquisition process which areas of the company or departments are lacking high-performing employees. If important roles are inadequately filled, you should develop solutions to eliminate the weak points during the acquisition process in order to be able to act quickly after the takeover.
5. Keep know-how in the company.
One of the risks of an acquisition is the loss of knowledge due to staff turnover - especially if the turnover affects employees in key positions. You should therefore not only identify key positions at an early stage, but also carry out an analysis of the potential causes of a departure in order to retain know-how and the relevant employees in the company.
There are at least three tools available for this:
- Firstly, you could investigate what confidentiality agreements exist and whether they are sufficient. It may be possible to adjust these before a takeover.
- Secondly, you could examine the possibilities of compensation and take this into account financially as part of the acquisition planning.
- Thirdly, you could explore whether it is necessary to create special incentives for individual employees not to leave the company after the takeover. Also consider how these incentives should be structured.
Independent of the question of how an outflow of expertise can be prevented, the investigation of this question should be an opportunity to evaluate the employer reputation as a whole in order to derive any necessary measures and estimate the resulting costs.
6. Involve employee representatives
An often underestimated evaluation criterion in HR due diligence is cooperation with employee representatives. This is because difficult relationships between company management and employee representatives can unnecessarily prolong the upcoming change. It is therefore important to check whether the cooperation is constructive or rather destructive. The frequency of court cases or conciliation committee proceedings in the past and current proceedings as well as the intensity of trade union activities by employee representatives can provide information on this. The number and content of company regulations often also allow conclusions to be drawn about the quality of cooperation.
You should also consider at an early stage when and how the employee representatives will be involved in the acquisition process and which people are suitable for this. It is also important to understand and evaluate the expectations of the employee representatives.
7. Review employment contracts and collective agreements.
It is also important to carefully review contractual commitments, such as severance agreements, which would apply in the event of a job loss due to operational reasons or a change in the ownership structure.
It is also important to examine how the notice periods are structured or whether individual contracts or collective agreements even exclude dismissals, at least for a certain period of time, which would naturally delay the planned restructuring of the company and therefore make it more expensive.
An important point to examine in the context of the monetary valuation is also the structure of existing pension obligations. Here, for example, the question arises as to whether only a certain contribution has been agreed or a fixed pension amount, how this is covered and how such arrangements can possibly be replaced in the future.
The existing remuneration models should also be critically examined:
- Are there still (old) obligations, for example from long-term incentives?
- What is the actual purpose of the remuneration models? And do they still make sense after the acquisition?
- How can the regulations possibly be changed in the future?
8. Consider soft factors in HR due diligence.
The soft factors that are relevant in the evaluation of human resources cannot usually all be determined from the hard factors described during due diligence. It is therefore very important that you build up a relationship of trust with the HR managers of the target company, including the employee representatives, during the course of the HR due diligence - ideally through your own communication behavior and in appreciative expert discussions.
