Down in the data room at midnight

By Alan Measures, Moog

Quite early in my career I represented HR on a number of business acquisitions. I found it heady, engaging stuff. Deadlines were tight and it was often a very high stakes, high profile game.  It’s true that the rest of the team were are times reluctant to have someone from HR involved, but there was always a point – albeit sometimes somewhat belatedly – where they had to admit that they couldn’t get it done without us.

The old school way of doing due diligence was via data rooms – usually gloomy little offices no bigger than a medium size broom cupboard on the target companies premises where binders with critical data would be set out for inspection. There would be no photocopiers, so the challenge was to locate the data you needed, scribble down the required notes, and use the time you were given as effectively as possible. As there might be more than one buyer, you could find yourself jostling alongside other potential suitors, and it wasn’t unusual for folders to be held a little longer than needed, or even strategically misfiled just to make the opposition task more of a challenge. I learned to get there early, have sharp elbows and take my own coffee mug.

Physical data rooms have given way to their virtual equivalents, with print disabled PDF’s the norm, or worse, scratchy scans of original documents. The game is now trying to unravel bizarre document naming conventions, and finding out if there’s any way of hacking round the printing restrictions.

Acquisition success rates still seem slim – estimates vary but at best are thought to be little better than 50/50.

The most common explanation for failure is the distraction and destabilisation that follows any purchase.  Much of this gets played out in HR and often in the reward arena. Terms and conditions will differ, jobs and reporting relationships have to be revised, benefits re-brokered. Due diligence often takes place with the current owners or senior managers, and “what’s in it for them” is often an unspoken but critical factor when trying to make progress. The compressed timescales that typify  due diligence are often cited as a reason for not anticipating the challenges the implementation phase will present before the deal is signed, but I think this is an opportunity missed. 

As due diligence is usually conducted with key managers in the target company, in the course of discovering things like benefit plans and bonus structures, it’s quite straightforward to start mapping out what the future might look like, and set some expectations for what might change. One of the biggest points here is establishing the fact that there will be change; that post acquisition, they should be prepared for some alterations. I always argue they can expect to be no better / no worse off, but the underlying detail may have changed. The biggest potential payoff from this is that once the deal is signed, it’s possible to avoid the newly acquired company cherry picking the terms that are better than what they had before, whilst setting aside anything they have which is better than their new owners provide. Even worse is the scenario where changes are put in the “too difficult” box, and the acquired company carries on unchanged, creating the dreaded “legacy” arrangements.

In the end it’s always “hurry up and wait”.  We won’t know what should change on day 1 of ownership, and we need to take a sensible amount of time to find out what should. But for all that we don’t know, I keep stressing that there will come a point when we do, and even if that 12 or 18 months out, don’t lose sight of the fact that it’s coming.

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