Big or small, no M&A transaction is without risk. And the surest way to minimise them is to carry out thorough due diligence. In this respect, no company involved in a merger or acquisition would skip the step of a tax and accounting audit carried out by external consultants or lawyers. And yet, some are still not fully aware of the importance of also including an in-depth labour due diligence in the investigation. This is despite the fact that failure to do so can have dangerous consequences for the success of the operation.
Objective: to identify risks in order to negotiate a fair price
The aim of the labour audit has to be to detect the points of risk that may exist among the labour aspects of the target company, even if they are hidden from the naked eye. Only with this comprehensive information is it possible to negotiate an appropriate purchase price (usually downwards), determine the return on investment, assess the possible requirement for collateral and even take the decision to abort the transaction due to the excessive risk involved.
A wide range of aspects to be assessed
The labour audit has to review thoroughly and in depth the formal obligations of the entity and its employees. This covers a very wide range of items: the staff and its organisation chart; the possible oversizing of the staff; absenteeism levels; overtime and attendance control; the legal relationship of partners, administrators and managers with the entity; the corporate culture; the internal work regulations; contracts and subcontracts; professional classification; salaries and remuneration and their monthly and annual economic cost; the salary scale by categories; compliance with social security obligations; inspection reports; administrative and judicial proceedings in progress; potential claims; geographical mobility; substantial modifications of working conditions; suspensions and terminations; health and safety at work; legal representation of workers and pending litigation.
Depending on the risks identified in the labour due diligence, the terms of the negotiation and the price of the transaction are likely to be affected in one way or another.
Consequences of a bad labour audit
The often underestimated area of employment of the target company can lead to numerous problems for the acquiring party. This is because the company’s obligations towards the workforce are directly inherited by the new owner. For example, the target company may have open legal proceedings for unfair or null and void dismissals, accidents at work, infringement of the Employment Safeguard Clause due to exemptions from social security contributions by ERTEs in the COVID period, etc. The casuistry is infinite, and it is not unusual for the sum of several of these cases to end up adding up to tens of thousands of euros to be paid by the buyer.
Specialist advice is essential
Due to the complexity of the labour aspects of any company, it is vital to have a team of qualified and experienced professionals to carry out an in-depth labour audit, analysing the risks in order to provide a realistic picture of the target company’s situation in this area.
At Confianz we can accompany you in all phases of the process: from data collection and analysis to the labour integration process once the operation has been completed, including price negotiation, decision making and contract formalisation. Tell us about your case.