Anyone who has ever been involved in a merger or an acquisition team remembers their first time; how green they were, how much they didn’t know and how much of a challenge it was just getting up to speed. They didn’t know what they didn’t know. Most neophytes are shell-shocked by the complexities involved, the myriad moving parts – and when the business target is an international concern, or has a foreign footprint, then it’s often a case of “what do we do now”?
Provided below is Part II of a due diligence checklist for international M&A deals, one that I wish I had when I was thrown to the wolves for my first overseas acquisition. This is not breakthrough material, and is likely a derivation of thinking that has evolved for years, starting from the first time one company decided to take over another. If you’re new to the process, it is a reminder of critical research steps, what mustn’t be forgotten.
This particular list comes via my friends at White & Case LLP, who make this information available as a service to the profession. When combined with Part I information it is thorough (some might say “exhausting”). Though some search elements may not be warranted in every case, I think you’ll find the checklist to be excellent preparation material.
- External agreements: Do any external agreements (with third parties) limit HR flexibility? For example, are there acquisition agreements from earlier deals that limit reductions in force? Has the seller signed onto any customer codes of conduct imposed on customers’ suppliers? Is the seller a government contractor who has taken on public-procurement obligations affecting HR?. Separately, look at outsourcing agreements with HR service providers like payroll, “temp” agencies, benefits and whistleblower hotline services.
- Payroll: Check the seller’s payroll processing compliance as to deductions, withholdings, reporting, compliance with mandatory payments to unions, and remittances to agencies including tax, social, unemployment and housing funds. How is payroll issued? Are there any extra deductions (such as for charitable contributions or employee loan repayments)? Does the seller properly pay mandated benefits like premium pay, vacation, profit sharing and thirteenth month pay?
- Wage / hour compliance: Verify compliance with wage / hour laws, cap-on-hours laws, overtime payments, payments during business travel and exempt-status designations.
- Duty of care: Get information on duty of care / safety / evacuation and other protocols such as for hazardous-duty work and occupational health / safety law compliance, including for expatriates.
- Discrimination / harassment: Verify compliance with local discrimination / diversity / harassment laws including laws on pay equity, affirmative action, mandatory training and “bullying”. Verify compliance with the seller’s own discrimination / harassment policies: many international discrimination / harassment policies go well beyond local laws.
- HRIS: Look into the seller’s employee data processing and human resources information systems (HRIS). Investigate transferability of HRIS and how HRIS complies with data protection laws. Has the seller made all required notices / communications to employees about HR data processing?
- Powers of attorney: Find out what powers of attorney employees, officers and directors hold. These are particularly critical in Latin America, where there can be different levels of powers, some of which include the power to dispose of company assets.
- Management oversight: What controls does the seller’s headquarters use to monitor local management’s compliance with laws and corporate policies?
Using this checklist should provide you with an advantage during the due diligence process, an early on understanding of what to be looking for, what questions to ask. So if you find yourself with limited time in the “war room” (documents center), have this checklist with you to help ensure that your due diligence is thorough.
A little preparation can pay tremendous dividends.
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