M&A due diligence is important. Very important. Dependent on which study you read, 60%-85% of all mergers and take-overs do not deliver the financial and/or strategic benefit it was expected. The due diligence process is supposed to assess if the deal makes strategic and financial sense AND if the two companies together can execute the process so the benefits can be reaped. And if it doesn’t – then to cancel the deal. Well, as the numbers show – it does seem to work.
The financial due diligence is often rigours and plays a major part of the overall due diligence process. In many cases it is the only due diligence which is really performed. But judging by the failure rate of M&A’s – it does not appear to be enough.
How can the success of M&A be improved? Answer: HR due diligence must play a bigger role than they do today.
Four things will improve the M&A success rate:
- HR must be involved earlier. HR is usually only involved in the second half of the pre-deal stage. Usually after the financial and legal due diligence. That’s too late. HR should be involved at the first stage of a deal.
- HR due diligence must go deeper into the organization. Many HR assessments only deal with the top management level. Many talents and key people are however based further down the organisation. Also, many practical integration problems occur at the middle-manager level. This level should also be included.
- HR due diligence must be more comprehensive. Many assessments are limited to a few superficial HR metrics (number of employees, union membership, staff turnover, pension liabilities, compensation plans etc.). This is partly because HR is involved too late. Becoming more comprehensive also means adding more types of data, which could include behavioural data, cultural information and engagement levels.
- HR must use more professional methods and processes. A proper, professional and value-added HR due diligence must be based upon a strict and rigorous process where relevant parts of the company is x-rayed, objectively measured and assess in specific relation to being able to execute on the successful integration of the two companies. Nothing more. Nothing less.