Mergers and Acquisitions HR Due Diligence Checklist (Free Sample)

If your organization is going through a merger or acquisition, your human resources team is probably trying to figure out what activities to include in the due diligence process.

Mergers and acquisitions (M&A) are stressful enough as it is! And that is why we’ve decided to make a mergers and acquisitions due diligence checklist for human resources teams going through the process.

Before we get started with the different areas of your organization you should include in your own list, make sure to download our due diligence checklist with the button below.

Now let’s get started…

Well, during an M&A event the buyer of said organization commits to doing due diligence on the seller’s business. This ensures that the buyer knows what they are getting into.

This is no different than the due diligence process that you might partake in on a personal level before making a big purchase. For example, when I purchased my last car, I did research about the make and model, looked at the car’s history, and even talked with people who had previously owned the same type of car.

Well, when your organization looks at potentially merging or acquiring with another organization, that due diligence process is even more complicated than the car buying scenario I described above.

Not only does your organization need to understand the valuation of the other organization, its financial statements, and its business model, you also need to know all about the human side of the organization. And that is where your human resources team comes in.

While your human resources team might not be as involved in the financial aspects of the due diligence process as your chief financial officer’s team, they still play a very important role!

The human side of an organization has both cost and value in monetary terms. Your team has to find and evaluate these costs (and their values) to predict the total impact on the purchasing organization.

If the due diligence portion of the M&A process is completed with no major red flags, the buying organization generally proceeds forward with the transaction.

Now that you understand what due diligence is in regards to the bigger M&A process, it is time to get into the nitty gritty.

As stated before, your human resources team is responsible for doing due diligence on all of the people aspects of an organization in regards to cost.

At first this can be confusing… how can you put a cost on a person? Or on a culture?

Welp, you can! And it is important that you do to ensure that your organization makes a smart buying decision.

Think about an organization’s compensation strategy. If the organization you are buying has compensation packages that are over 30% higher than your organization’s, that could cause a big problem for your payroll expenses.

With this information, your executive team, and yourself, would have to evaluate if that extra cost is worth the value you would be acquiring by completing the transaction.

So there are two big areas of consideration you should focus on when creating your own HR due diligence checklist: Employee Plans and Labor Relations/Benefits/Compensation.

Let’s take a look at each.

Within this category, there are several different areas of interest. But from a high level, what you want to remember is that you will need information on all of the current plans the selling organization offers to employees.

Here is a list of different plans you should gather information on:

• Health Insurance
• Group Life
• Accident
• Disability
• Retirement Plans (all different types- some organizations have several)
• Stock Purchase Plans (again there are different types, so gather information on all of them)
• Severance Plans
• Incentive Plans
• COBRA
• ERISA

For all of these, you will need to know information about past claims and lawsuits, monetary commitments of the selling organization, premiums, and all vendors that the the organization uses for these plans.

This area can be hard to complete due diligence on because of the sometimes qualitative measures required. For example, how do you measure the value of an organization’s culture? And how do you see if one culture will successfully pair with another company’s?

Well, there is no good answer for the questions above. The best your HR team can do is to gather the following information and then review it as a team to see if your findings impact the overall value of the organization.

Now don’t be alarmed, not every single item in this category will be purely qualitative. Things like compensation and pending litigation will be much more easily quantifiable.

Here is a list you should plan to go over:

• The organization chart and all different functions of the business
• Employee handbook and company policies
• Employee demographic information:
  • Salary
  • Title
  • Date of birth
  • Age
  • Location
  • Tenure
  • Position
  • Skillset
  • Etc
• Vacation Policies
• Compensation Plans
• Bonus Plans
• Any potential claims, litigation, charges, or agreements in accordance with the following areas:
  • Worker’s Compensation
  • Unemployment Compensation
  • Wage/Hour Matters
  • OFCCP
  • Equal Employment Opportunity Commission
  • Age Discrimination in Employment Act
  • Americans With Disabilities Act
  • Family and Medical Leave Act
  • Occupational Safety and Health Act
  • National Labor Relations Board
  • Pension Benefit Guarantee Corporation
  • Whistleblower Matters
  • Sexual Harassment Claims
  • Breaches of Contract
• Any and all current litigation and past relevant litigation
• All compliance reports
  • EEO-1
  • VETS 100
  • Affirmative Action Plan
  • OSHA reports 300, 300A, and 301

After your team has gathered all of the information on your checklist, it is time to synthesize your findings and make a recommendation to your executives about moving forward with the merger or acquisition.

There are a few areas where you will want to focus on:

• Any potential human resources issues that could result in a change in monetary value for the organization
• Any cultural differences between the two workplaces that could greatly impact that success of the merger or acquisition
• Areas where more information is needed to make a solid recommendation

It is important to note that there will never be a perfect buyer and seller match during a merger and acquisition. No two companies can be perfectly aligned before they are compiled together, so searching for this will be a fruitless endeavor.

What your team should really be searching for are red flags. Big issues that will greatly impact the overall success of the merger and acquisition, and the resulting conglomerate.

For example, let’s analyze situations that would fall into the first point listed above, where certain HR issues could change monetary values associated with a merger or acquisition. The following situations would be red flags:

• Sexual harassment litigation that could result in thousands of dollars having to be paid out in settlements
• High level executives with multiple year long contracts at exuberant prices
• Hiring/firing practices that result in adverse or disparate impact, that could potentially lead to litigation the buyer would be responsible for in the future

All of the above are examples of red flags that could potentially stop your organization from continuing with the M&A transaction.

It is also important to look at cultural differences that could prove too difficult to mend to create a successful, new organization, too. Imagine trying to merge an organization with a culture like Google’s, with an organization that is very suit and tie and structured. That could be rough!

And while that might not be a big enough red flag to cause your upper management to call off the entire transaction, it could provide insightful information that could give you an upper hand in negotiations. It could also help your human resources team prepare new policies and programs to help with the transition that will happen when merging the two cultures.

Finally, if your team finds any holes in the data you have gathered, always make recommendations to your upper management where more information is needed to make a sound decision.

If you feel uncomfortable with a lack of information, always voice that concern. It is the ethically responsible thing to do with millions (sometimes billions) of dollars and tons of jobs on the line during an M&A transaction.

Aley Brown

Aley is a versatile global business leader with proven experience managing high-performing teams and engaging a data-driven approach to strategies that exceed company objectives.