HR due diligence - a way to do this without seller & employee stress?

July 07, 2023

by a searcher from University of KwaZulu-Natal in Tasmania, Australia

Hi SF community,

Thinking about DD plan and actions around HR due diligence, and the importance of understanding the targets company culture & who the real key employees are.

We have twice experienced post sale exodus (from employee perspective) when promises made by existing founder to staff were not included in final deal.
Quick way to loose a really valuable key person and loyal staff.

Has anyone been able to do HR DD by “consulting” to the target company - so as to not scare staff but find out about company culture etc pre-deal?
My experience in management consulting was that SO MUCH can be seen even spending 3 days at a company, so could the offer of a free 3 day assessment wearing ‘consultant hat’ possibly work for the existing founder and serve this purpose for the searcher too?

Does anyone have a perspective/idea on this?

Thanks in advance!
^redacted‌ ^redacted‌ ^redacted‌

Roz

Reply by a searcher
in Washington, D.C., DC, USA

Yess!! We acquired a HR-Tech SaaS and we did our primary DD to understand and get a sense of the culture and people. Often founders are hesitant about providing access to the team but since we were in the final stage of acquisition we wanted to get a sense of dependency and how is actual people culture etc.

Here are few things we implemented as process:
1. Speaking with key developers on tech, daily life, process, how did they handle production fires (get a sense if there is accountability, restrospective or more of blame-game)
2. Understand why they are here and asking them questions about where do they see themselves in next 3 years
3. What is something they like and what is something they don't or want to improve? (Do they have scale mindset?)
4 We used psychometric tests using Culture Index to understand each personality in detail
5. When we acquired the business, it was under-war, so we could not gauge the entire 'culture-culture' but we do got a high-level gist of how they work, what are their working principles and structure, and etc.

Happy to share more insights on DM :)

Reply by a searcher
from University of KwaZulu in Tasmania, Australia

Thanks so much for your comment Nav, I’d love to find out more!
Im trying to see if it’s possible to do this type of DD before the final stage of acquisition, as with the other DD.
It may not be possible to push this HR/Process DD earlier in the process for trust and IP reasons, but I hope we can find a way as it’s a major ‘soft skills’ type blind spot in the acquisition process.

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