[ Pobierz całość w formacie PDF ]
.As we will see in Chapter 10,“The Importance of Integration,” the culture of the target firm is an often overlooked, but very critical element of the process.As a result, HR professionals should spend as much time as offered at the target location to get a sense for the cultural or other issues that might be faced once the contracts are signed.By spending time on site, they can learn about the culture and working style of the target and how that may fit with the buyer’s culture.Tactical plans can be created for central issues that are identified early.These often include differences in philosophy, work environment, standards of integrity, work/life balance, diversity of the workforce, and other such issues.Although often overlooked, these areas can be more critical to the venture’s success than all of the hard data analysis and financial modeling.Other, more mechanical steps for HR to take include the following:I A review of the benefit plans of the target for cost and consistency with the buyer’s plans.In many cases, a target’s plan is dramatically different in terms of the types of coverages offered for insurance, 401(k), defined-benefit plans, vacation time, sick time, and so on.These issues may seem minor during due diligence, but they can have a dramatic impact on the morale of both the buyer’s and the target’s employees postacquisition.They can also have a dramatic64CHAPTER 5impact on the cost structure of the target postacquisition.The funding status of defined-benefit compensation plans should also be analyzed.Fluctuations in the stock market can have a dramatic effect on the value of plan assets available for distribution to plan participants.Any short-age in these plans that is not picked up by the seller would represent an incremental cost to the buyer.I Provisions for the senior leadership team of the target need to be reviewed in detail.Long-term incentive compensation, severance, guaranteed employment contracts, and so on can impose a significant liability on the seller that would not necessarily be apparent in the target’s financial statements.I In most due diligences, access to the “rank and file” of the target is somewhat limited by the seller.However, the buyer’s HR representative needs to form an opinion concerning the target’s senior management team and theplans for each individual postacquisition.I Employment agreements need to be negotiated for those senior managers that the target wants to keep.This can be a difficult and time-consuming process, and it should be started as early in the due diligence process as possible.In many situations, a buyer’s bid will be made contingent on its ability to lock in senior management to an employment agreement before the deal is closed.Once the deal has closed, all leverage shifts to the seller and target management.However, if these discussions happen preclose, the seller can be engaged to help sign up key managers, or a purchase price reduction can be proposed if the buyer can’t get key managers to sign on.You don’t want to wait until after the deal closes to learn that a key target employee is not coming along.By this time, it is too late, and you have paid a premium for management that is no longer there.RiskRisk professionals can play a large part in preventing bad deals from being done.They should approach the deal with a healthy skepticism, unlike marketing, sales, and business development professionals, who will often take an optimistic view of what canDue Diligence: The External Side65be done with the target.Good risk people will take an interest in trying to structure around issues or get protections in the contract for issues that have been identified, while still protecting the integrity of the process.They want to do deals to help their company grow, avoid deals that would adversely affect the value of their company, and get the appropriate protections in the process.In many cases, risk personnel are viewed as the “protectors” of the buyer’s business, ensuring that bad deals don’t get closed.Areas to be analyzed in the risk process include the following: I The credit quality of major customers, including an aging of accounts receivable and analysis of customer financial statements.Due diligence team members need to assessthe adequacy of the provision for bad debts to ensurethat the amounts paid for receivables can be collected from customers after the transaction closes.Particular attention needs to be paid to large delinquent balances identified in the target accounts.I The major supplier/subcontractor agreements need to be analyzed for potential price escalations, cancellation clauses, or other elements that would affect the supply of goods and services to the target.Many contracts have“change in control” provisions that allow for modification or cancellation of a contract should majority ownership in the target change hands.Also, large, unfavorable contracts with suppliers that can’t be cancelled should be identified early and their cost factored into the purchase model.I Review the customer base for any major customer concentrations.A loss of a significant customer at or after closing of the transaction can have a dramatic effect on the financial results of the target postclose.A change in company control can cause many customers to rethink their relationship and send contracts out for competitive bidding.The risk representative will often be at the heart of the major due diligence issues.The approach that this individual takes can make the difference between doing a bad deal, walking away from a bad deal, or moving forward with adequate protections in the contract for the issues raised
[ Pobierz całość w formacie PDF ]