Human capital due diligence: how can it improve your work?

Human capital due diligence: how can it improve your work?

From Mathew Philip

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Any merger and acquisition process is full of tremendous details. This is why the assigned merger staff and managers may intentionally or unintentionally overlook the matter of human capital due diligence. This action disregards the fact that a company is run by people, and the company’s employees are the reason behind its success.

For several reasons, many major mergers fail to realise their expected goals. But a very common one, in many cases, is related to poor management of human capital transition, which could’ve been avoided by proper overview of the workforce.

Explaining the due diligence of human capital

Human capital or human resources due diligence refers to the process of reviewing the entire HR policies of a company by another organization, usually the acquirer. This means that the acquirer will look at the defining characteristics of the work culture and environment. They will also review the employees’ qualifications, expertise, payments, contracts, and many other aspects.

Why do acquirers perform due diligence?

Unlike tangible assets, human capital can’t be calculated or listed on balance sheets. It has an abstract but real value that can exceed the economic value of machines and buildings. Eventually, people who operate machines, sell products, coordinate with clients and many more details.

Human capital is the reason a company is successful or not. You are probably buying a company and investing in its success because of its efficient employees.

There are famous examples of mergers where both parties were reputable and successful. However, these mergers were not able to achieve their financial promises. According to different case studies on these failed mergers, neglecting accurate study of human capital has led to the loss of basic success elements after the merger.

Performing due diligence is not a difficult matter when assigned to real professionals. You can count on a reputable third-party provider with solid experience in conducting human due diligence. Such providers have the right tools and software to analyse everything related to HR work.

Important facts about human due diligence

If you are arranging for human due diligence, here are a few facts about this process:

·        It doesn’t take long.

Professional human due diligence is not a long-term process. In fact, if you assign it to a third-party professional company for human capital management, you can have our study within a month or two. Of course, this depends on the readiness of the seller party, as they should provide their files and data.

·        It is not exclusive for an acquiring company to

It is very common for an acquiring company to conduct human capital due diligence. But a sell-side can do this too. It contributes to the success of the merger, as it can reveal the presence of problems that would stand in the way of the process. In fact, a seller company can do its own due diligence even before the start of the acquisition and merger.

Accurate and efficient due diligence can give both sides of the merger peace of mind and fulfill their financial expectations afterwards.

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