Mergers and acquisitions can be exciting for companies, offering the possibility of growth, expansion and market dominance. Successful M&As are more than simply signing the contract. One crucial, yet often unnoticed aspect of the entire process is operating & HR due diligence. This in-depth look at the operations and human resource of the target company provides a better understanding of the key aspects that can make or break the deal.
Understanding the Why Beyond Balance Sheets
The significance of financial due diligence is undeniable, however it’s only a small portion of the story. Operational due diligence and HR due-diligence go a little further. Buyers will look at the operational aspects of the targeted business, including its systems and processes. Examining:
Prices and Products: Knowing the product, its price points and their value proposition will help you to select appropriate products that are market-ready.
Customer Lists. Evaluating the companies that the company is targeting and the nature of their relationships could provide valuable information on possible revenue streams.
Operating Procedures: Examining how the daily operations function from production to the supply chain – permits identification of potential inefficiencies and opportunities for integration.
Humans as the Engine of success
Due diligence in HR is equally crucial. Here, the buyer focuses on the human capital driving the company. The principal areas of inquiry are:
Recruitment & Onboarding: Understanding how the company you want to target attracts and integrates fresh talent could help predict potential post-acquisition talent retention challenges.
Training and Development: assessing your workforce’s skills and knowledge can ensure a smooth transition. It can also help you identify training needs.
Employee Retention: Analyzing turnover rates and employee satisfaction levels can provide a valuable insight into the culture of your company and the challenges that could arise when integrating your existing workforce.
Two Lenses can Benefit from Synergy
Due diligence in HR and operational, when combined, offer a holistic picture of the target company. The two-pronged process uncovers hidden problems in the financial statements that may not be apparent.
Imagine this scenario
On paper the financial strength of a company that could be a target appears to be excellent. But through due diligence on operations you find outdated production systems hindering efficiency. In addition, HR due diligence unveils the culture of high turnover and low morale of employees. The combination of these findings can dramatically change your perception of M&A potential benefits.
Future Investment Return on Investment for HR and Operational Due diligence
While HR and operational due diligence involves additional investment and time, it’s an investment that is wise. You can determine the risk and potential benefits by actively identifying the risks and benefits.
Reduce integration issues Learn about the operational and HR structure of the target organization can help you integrate more smoothly after your purchase.
Boost employee morale: By addressing concerns of employees in the early stages, you can build trust and increase the chances of a successful integration.
Maximize profitability: Identifying inefficiencies and streamlining processes, as well leveraging the pool of talent within the company you want to target, will unlock the value that is hidden.
Conclusion: Building a Winning Team
The goal of a successful M&A deal is not only to purchase assets. It’s also to acquire an expert team. Operational & HR due diligence lets you evaluate the potential of this team, pinpoint areas for improvement, and ultimately, build an even better, more cohesive unit.
Beyond the financial statements, HR and operational due diligence helps you make educated decisions, reduce risk and realize the true value of M&A. It is crucial to forming a successful team and securing the future of your business.