Human Resource

In mergers and acquisitions, due diligence forms the base upon which

virtually all key decisions -- both strategic and operational -- are made.

Those involved in such transactions understand the importance of due

diligence in identifying potential "deal breakers" and any items that may

have a material impact on the negotiations or price.

However, once this has been accomplished, it is not uncommon for

due diligence activity and intensity to wane. This cuts short a process that

could be beneficial in other ways and leaves much important information

on the table -- especially information that could influence integration

decisions and pave the way for a smooth integration process.

HR Involvement

Critical to M&A Success

41 WorldatWork Journal second quarter 2005

Robert A. Bundy

Mercer Human Resource Consulting

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This is of particular relevance to HR professionals

because they bear a significant responsibility for

integration. Ultimately, they have responsibility for

a host of "people" issues ranging from the integration

of benefits and compensation programs to workforce

restructurings, labor contracts/agreements and their

administration and the management of issues, such

as leadership, organizational culture and employment

practices. And yet they usually are not given access to

vital information surrounding these people issues until

far into the merger or acquisition process. Compounding

the situation, HR representatives often have not been at

the table with their colleagues from finance, operations

and other functional areas during the early stages of

discussion, decisions and due diligence.

A different approach to the due diligence process

can yield different and far superior results from an

integration standpoint. While a smooth transition

alone is an important goal, it also is the means to an

even more important end. As illustrated in Figure 1,

the faster a deal can be completed, the faster the

organizations involved can begin to realize the

full value of the deal.

Achieving M&A Success

There are three key factors to help an organization

achieve merger success, and people issues play an

important part in each:

0 Business logic - Why are we doing this transaction

and what needs to occur for it to be considered a

success?

0 Price paid - What is the economic baseline and

what improvements in post-merger performance do

we need to see in order to pay any premium in price?

0 Integration - How do we translate the strategy

to merge or acquire into real value?

Due diligence is intended to uncover the answers

to these three questions. It prevents organizations from

overlooking key issues and can significantly improve

the chances of the deal's success. Specifically, due

diligence is performed to:

0 Discover issues that could be show stoppers

or "deal breakers."

0 Find and investigate material issues that might

affect the price or be negotiating points.

0 Uncover and understand the data and information

that will influence decisions around integration.

Let's start by taking a look at how the due diligence

process plays out over the four stages of a deal, then

we'll address what can and should be changed from

an HR perspective to obtain better results.

Stages of the Deal

The first stage of a merger or acquisition often is

referred to as the courtship and