Must see inside! During divestitures, sellers increasingly perform their own HR due diligence to put people assets in the best light and get the best price

HR Magazine, Sept, 2004 by Robert J. Grossman

"I was asked to put together a proposal to retain the key officers and to plan for the after-sale transition," says Siporin, who benefited from a parachute deal and enough time to find his current job as vice president of shared services at Lord Corp. in Cary, N.C., a 2,200-worker company that manufactures adhesives and coatings. "We met and developed a program that included severance and retention bonuses for 40 key players--managers and technical experts tied to the sale."

Inevitably, due diligence will have an impact on the structure of the deal. American Water, a Voorhees, N.J.-based utility with 8,000 employees that provides water, wastewater and other related services, is a case in point. Debbie Krauss-Kelleher, director of compensation and benefits, was called on to provide data to help management structure a divestiture of a 120-employee company. As a result, HR recommended that the sale be packaged to include buyer responsibility for costly retiree benefits.

Sometimes a thorough HR evaluation results in a no-go. "We've gone through them and decided to pull the deal from the table and wait six months because, through our due diligence, I was able to provide them with information about certain managers who could lead a turnaround if given a few months to prove themselves," Capizzi says.

Getting the Best Deal

Although sellers often don't know the motivations of potential buyers ahead of time, HR has to prepare the human assets for the most likely scenario. That means understanding why the buyer wants the assets and tailoring your presentation accordingly. "Get in their shoes and understand what will contribute to enhancing the purchase price and what will bring it down," Zimmerman says.

Think like an investment banker whose job is to package the divestiture. Like selling a house, you may need to do some fixing up so you can get more value. "I've had the experience where you look at the deal as a run-down house," Capizzi says. "You've got to pretty it up, put a coat of paint on it, before a buyer will be interested." In one situation, Capizzi says that Thales Navigation decided to upgrade leadership. "We brought in interim management to run the division, people who knew there was a chance of going with the business if the transition went smoothly.

"But don't overdo it," Capizzi cautions. "One coat is enough."

The question of how much fixing up to do turns on how much the company is willing to spend, says Don Schneider, an HR consultant in Westport, Conn., and former senior vice president of HR at The New York Times Co., where he was involved in a divestiture. "Calculate your ROI [return on investment]. What will it cost to make it more marketable and what will I get in return?" Don't forget to factor in opportunity costs you incur by allocating resources that could be supporting your core business.

In contrast, Anusha Felsher, national manager of HR and administration at Hyundai Auto Canada in Markham, Ontario, says sprucing up assets sounds good but usually doesn't happen. "The only coat of paint I've seen is dropping the price," says Felsher, who handled two divestitures as chief HR officer at Photon Dynamics in Toronto. "Usually, when you consider how much time and energy you'll have to spend managing it when it doesn't benefit your core business, you just lower the price."