Each week we meet a variety of different people involved in mergers and acquisitions in some way. From corporate development directors in listed businesses, to investment partners in private equity firms and business angels, there is a commonality that we hear across most meetings.
The companies we work with are involved with buying businesses where the deal value is between £5 million and £25 million. Whilst mega- deals resumed to more frequent levels in 2016, there were over 1,500 PE deals under €25 million in Europe last year, more than 600 in the B2B sector, according to 2016 Pitchbook data. Our experience shows us that people risk is greatest in small, B2B businesses. Increasingly in our meetings we are hearing “the business was not a bad investment, but if had known ‘x’ before, we may have reacted differently in the integration”. And more often than not ‘x’ relates to people.
It therefore surprises me that, yet again, ‘x’ was not identified during due diligence. When we probe the people due diligence completed in these cases it covers performance of the sales team, the leadership team, policies and process, documentation and structure. Very rarely do we hear about people due diligence done properly. Due diligence is typically done by trusted advisors as part of a wider package; lawyers, accountants, consultants who have rarely, if ever, been operators and very few have talent / people experience. Applying tried and tested research methods that have been used in the search and talent intelligence world for years, you can find out significantly more about the people in the business you are considering.
If conducted before an approach is made (or indeed if provided as part of a vendor pack) it is possible to identify the key players, the views of prospects, clients, network and industry contacts on the people. It is possible to identify who you need to work hard to retain, and the flight risk of those either connected with earn out or not. It is possible to gain an understanding of the culture and how this could work in your favour through the integration. It is even possible to identify if you need to acquire the business or whether you could attract some of the key players to your business instead. And in most cases it is possible to find out ‘x’ before.
As we look further afield for more and more opportunities it will become even more important to identify this information. To enter a new geographic market or vertical market without deep knowledge of people is foolhardy at best. Don Harrison, VP Corporate Development at Google talks about the focus Google puts on the business individuals. He believes their M&A process is different from other companies “The first thing I’d say – and it’s kind of our idiosyncrasy- is how much we focus on leadership and the team”.
Typically this information can be used to identify key issues that may occur during integration or post buy out- allowing all parties to address issues and come up with solutions earlier, saving significant time and money and, more often than not, avoiding the “not a bad buy, but..” scenario.
Alison Ettridge is a business consultant and founder of Talent Intuition.