TM - October 2007 - (Page 30) rate executives can take from private equity firms in efforts to address inefficiencies and above-market human capital costs. For one thing, those human capital costs (largely driven by benefits) can consume as much as 40 percent of corporate revenue by some estimates, and they are tougher to manage and measure than other sorts of capital. Going into a merger, then, the first step in managing them is to take the private equity approach and perform substantial due diligence on the people side of the business. That means a rigorous analysis of legacy costs such as pension plans, health care plans, retiree medical and life benefits, collective bargaining contracts and change-incontrol agreements. Corporate executives could gain from adopting the private equity mindset: Find out which legacy costs can be reduced through buyout or conversion programs or through bargaining with unions and/or employees themselves. Even so, eliminating unproductive people and benefit costs is easier (from a reputational and public-relations standpoint) for private equity firms that, as outsiders, have a shorter-term relationship with the employee base. Corporate decision makers must worry more about community and even global reputations that might affect their brand equity in the marketplace, but private equity firms take very seriously the quality of the management teams acquired in their investments — managers who can make the best and most balanced decisions in controlling human capital costs. This should hold true for corporations too, from the due-diligence phase through the post-close period of the deal. It’s crucial to spend time assessing which managers can not only deliver on revenue expectations but also have the savvy and experience to make good decisions about legacy-benefit costs. In the future, you will see convergence in the approaches to realizing the value of the deal among private equity and corporate acquirers. As private equity portfolio holdings grow, their focus will increase on harvesting ongoing value throughout the holding period. To generate long-term value corporations can increase their rigor and investment in the due-diligence process, applying many successful private equity methodologies. Bob Braddick is a worldwide partner and global leader for Mercer’s Private Equity mergers and acquisitions business. He has more than 25 years’ experience across the HR consulting domain, specializing in mergers and acquisitions. He can be reached at editor@TalentMgt.com. ©2006 LearnKey, Inc. LK0407 Source Code #4134-732 ©2007 LearnKey, Inc. LK0907 Source Code #4134-732 http://www.learnkey.com/tmmag http://www.learnkey.com/tmmag
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