Key Challenges: Initial Transaction Due Diligence
At the point of transaction, there are a myriad of factors to consider that inform the confidence in any deal. Financial due diligence covers a comprehensive review of financial statements, quality of earnings analysis, working capital assessments, and other critical financial aspects. While, legal due diligence typically includes a review of contracts, intellectual property, regulatory compliance, and other legal aspects.
For many transactions, combined legal and financial due diligence costs might be between 1% and 3% of the deal’ total value however, this can be far greater for complex transactions.
Human Capital Due Diligence
Considering the associated costs and the sums of money involved
it is understood that a systematic, comprehensive and rigorous due diligence is adhered to. However, when it comes to people and Human Capital related outcomes, Private Equity, Deal Advisors and Investment Managers rely on Senior Leadership Representations.
In a data driven world, where we take data driven decisions for granted, there is a gap when it comes to in investment due diligence. Notwithstanding the transaction size and the volume of capital at risk, it would it would seem a logical and wise decision to take the same approach to Human Capital in the context of due diligence.
Key Issues:
- Limited Access to Employee Sentiment
- Inaccurate Management Representations
- Hidden Cultural Problems
- Overlooked Operational Inefficiencies
- No capability to probe Human Capital Information
- Lack of Real-Time Data
