Beyond the Numbers
Beyond the Numbers
The Hidden Human Risks in Commercial Due Diligence
When companies conduct commercial due diligence, the focus often zeroes in on financials, contracts, and operational data. While these elements are critical, an often overlooked-and potentially deal-breaking aspect is the human side of the business. Understanding the hidden human risks can be the difference between a successful acquisition and a costly failure.
Why Human Risks Matter
Human risks encompass factors like employee retention, cultural fit, leadership dynamics, and communication effectiveness. According to Mercer, over 55% of respondents in M&A transactions identify talent challenges as a significant issue, especially during post-merger integration2. Ignoring these risks can lead to low morale, loss of key staff, reduced productivity, and ultimately, diminished business value3.
Common Human Risk Pitfalls in Due Diligence
- Cultural Clashes: McKinsey reports that 95% of executives believe cultural fit is critical to integration success, yet many deals fail because this is neglected.
- Leadership Oversights: Harvard Business Review highlights that 60% of executives feel leadership issues are under-addressed during mergers, risking instability during transitions.
- Superficial Background Checks: Relying on surface-level checks can miss red flags; 15% of companies found significant issues post-acquisition that could have been uncovered earlier.
- Undervaluing Soft Skills: Teams with high emotional intelligence outperform others, but these qualities are often overlooked in due diligence.
- Poor Communication: Nearly half of employees in acquired firms report insufficient communication about changes, which can erode trust and engagement.
Integrating Human Risk Assessment into Due Diligence
A comprehensive due diligence process should include:
- Workforce Analysis: Understanding employee demographics, key talent, turnover rates, and morale.
- Cultural Evaluation: Assessing organizational values, behaviors, and compatibility with the acquiring company.
- Leadership Review: Evaluating the strength and alignment of management teams.
- HR Policies & Liabilities: Reviewing contracts, benefits, compliance issues, and potential legal risks.
- Communication Strategy: Planning transparent and consistent messaging to employees throughout the transaction.
The Payoff: Unlocking True Value
By giving equal weight to the human element, dealmakers can uncover hidden risks and identify opportunities to enhance value post-deal. This approach reduces surprises, supports smoother integration, and preserves critical talent, ultimately protecting and increasing the investment’s worth.
In summary, commercial due diligence is much more than numbers and documents.
The human risks-if ignored-can undermine even the most financially sound transactions. Incorporating thorough human risk assessments ensures a clearer picture of the target business and lays the foundation for long-term success.
Check-out this information:
- ASTM E1527-21
- Commercial Zoning Requirements in the Triangle Area
- Environmental Assessment Standards in North Carolina
- North Carolina Real Estate Commission - Commercial Property Guidelines
- Greater Raleigh Chamber of Commerce - Economic Development Reports
- OSHA Technical Manual (OTM)
- Asheville Development Services Department
- North Carolina Office of State Fire Marshal
- Asheville Chamber of Commerce
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