HR Due Diligence Checklist for Mergers & Acquisitions
HR Challenges to Mergers & Acquisitions
Whether it’s an acquisition or a merger, news of a big change causes a wave of anxiety through the company being sold or the two joining forces. It’s the job of HR to ensure a calm and smooth transition. Throughout the process, HR will be the point of contact for employees seeking guidance and reassurance.
It’s not uncommon for the organizations involved to have distinctly different corporate cultures, management styles, problem-solving methods and workplace structures. HR teams must do their due diligence if they want to ensure smooth business operations on day 1.
If the business reorganization is handled poorly, it can have a negative effect on the morale and productivity of your employees. Their continued loyalty and performance are often contingent on how this process is handled. For the M & A to be successful, it’s important that key employees be retained.
HR Due Diligence Checklist
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Pre-Merger Due Diligence HR Checklist
Diving into a company’s human resources structure offers a holistic view of the target company and its employees. The knowledge you glean from your HR Due Diligence can help you integrate cultures and policies post-merger.
Make sure you have the following information:
- List of all the executive employees of the company and employees of the company whose total annual compensation is above $300,000
- Basic employee demographics: title, position, salary, age, location, tenure, gender, skills, etc.
- HR metrics: headcount, average tenure, turnover, time to fill, etc.
- Performance review schedules and structure
- Recruiting and onboarding process, including copies of interview guides or templates and new-hire orientation practices
- An audit of the HRIS system/employee database
- Copies of payroll documents for all employees
- Detailed summary of HR and employee-related expenses
Agreements & Contracts
An audit of the company’s HR agreements is essential for protecting yourself from any contractual limitations you might be inheriting. It’s also an opportunity to make sure your employees have signed everything they need to.
Collect and review labor contracts, employment contracts, tax information etc. Documents such as:
- Employee contracts and/or employment-at-will doctrine
- Labor contracts, union agreements, and collective bargaining agreements
- Non-compete contracts
- Tax allocation, sharing, or preparation
- Contract waivers or collection of any federal, state, local or other taxes
- Contracts relating to repurchase, redemption, exchanges, conversion or similar transaction
- Confidentiality Statements/Agreements
- Contracts pertaining to preemptive rights
Human Resources Policies
Policy documents and codes of conduct underpin the people management structure of the business you’re merging or acquiring. It’s important that you audit these policies to make sure that they align with your own policies and meet all legal requirements.
- Absenteeism Policy
- Disciplinary Policy
- Personal, Maternity & Sick Leave, & Bereavement Policies
- Grievance and Damage Control Policy
- Code of Ethics/Conduct
- Safety Policy & practices
- Media Relations Policy
- 3rd Confidential Information Policy
HR departments are usually responsible for ensuring that the company is compliant with current legislation. Performing your due diligence here will ensure that the target company isn’t cutting corners, because the cost of non-compliance can be steep.
- Litigation or judgments settled within the last 5 years in which the company was involved directly or indirectly
- All pending or threatened litigation, inquiries or investigations
- All consent decrees, judgments, injunction, orders, and/or arbitration findings to which the company is subjected or bound
- List of all employees including those covered by disability legislature
- History of all sexual harassments accusations, charges, and convictions from the past five years
- Equal employment and anti-discrimination legislature policies
- History of Unemployment and Worker’s Compensation claims
- Fair Labor Standards Act compliance
A decent benefits package is key to employee retention. During a merger, many employees will worry about their benefits packages. Will it be kept or scrapped? Will essentials like health plans be taken away?
You will want to dive deeply into the target company’s compensation system to appraise its suitability. Does it cover all the things your current business does? Is it competitive and compliant?
Documents and information you need to answer these questions include summaries of benefits coverage (SBCs), pay information, and the pay structure.
Be sure to collect the following:
- Employee health insurance plans and policies
- Details of other types of nonmonetary compensation
- Monetary compensation plans & schedules
- Bonus or profit-oriented incentive programs
- Details of employees who have received bonuses, amounts given and reasons for it
- Severance plans and packages
- Pension plans and/or other retirement plan options
- Verify compliance with ERISA
- Collect information on company’s COBRA
Post-Merger Integration Checklist
When the merger is complete, your HR department needs to switch gears in order to provide a seamless day one transition. This will help ensure a consistent quality of service to customers and stakeholders.
- Develop a new hiring process
- Short term for immediate needs
- Long term overall strategy
- Prepare for new hires
- Onboarding documentation
- Benefits overview packets
- New hire packets
- Create a plan for onboarding union employees (reach out to union)
- Develop a compensation and benefits plan
- Identify and make a plan to eliminate redundancies
- Prepare severance documents
- File WARN act notice if needed
- Develop a new org chart
- Partner with key IT stakeholders to create a process and timeline for merging HR systems
- Create a performance review process
- Create a training and development plan
- Develop a communication plan for communicating all HR policy changes to employees
How to Acquire HR Information from a Business
If you and the target company are on good terms, it’s easy to acquire the information you need. Requesting org charts, policy manuals and handbooks requires the work of an email.
You should also request access to any databases or spreadsheets detailing HR metrics and plans. Another useful source for HR teams is employee surveys and suggestions. This can give you a sense of the mood and culture of the business you are integrating.
You may be in the uncomfortable position of working from an unfriendly deal or hostile takeover. In these situations, you may find it hard to locate a helpful point of contact. So you may have to get creative.
Seek out published reports and news stories about the target company for information. If you can, locate ex-employees or board members. They may not have a stake in the situation anymore and may be able to help. Finally, you can reach out to entrenched 3rd parties.
Customers, suppliers and recruiters often know more about the inner workings of a business than you might think.
Ultimately, when the merger goes through, you will gain access to most of the information you need. But waiting that long will disrupt the HR integration process. This will have knock-on effects further down the business. Performing your due-diligence beforehand will ensure a seamless day 1 integration that limits business disruption.
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