Due diligence is a critical part of mergers and acquisitions (M&A) for staffing firms. It helps identify potential risks, assess value, and ensure a smooth transition. Here are the key areas staffing firms should focus on during the due diligence process:
- Financial: Analyze revenue, EBITDA, accounts receivable, and payroll costs to assess financial stability and cash flow.
- Operational: Review client contracts, client concentration, back-office processes, and regulatory compliance to understand the day-to-day operations of the staffing firm.
- Legal: Identify potential liabilities related to employment law, co-employment risks, pending litigation, and contract obligations to mitigate legal risks.
- HR & workforce: Evaluate internal staff, contingent workforce, payroll liabilities, and employee benefit obligations. Given that staffing firms rely on a contingent workforce, a thorough analysis of human capital is essential.
- Technology: Assess software systems, IT integration, data security, and proprietary technology to ensure operational efficiency.
- Insurance & risk management: Review workers’ compensation claims, general liability coverage, and potential insurance-related liabilities to safeguard against exposure.
- Tax & regulatory: Verify payroll tax compliance, tax filings, and regulatory licenses for state and local operations. Understanding taxes and regulatory obligations is crucial, as they can affect deal structure and post-closing liabilities.
- Commercial: Assess market position, brand reputation, client satisfaction, and growth opportunities to gauge the firm’s competitive landscape.
- ESG (Environmental, Social, Governance): Review sustainability efforts and governance structures to ensure transparency and alignment with business practices.
- Post-Merger Integration (PMI) planning: Identify integration challenges related to systems, HR policies, and operational processes to facilitate a seamless transition.
This comprehensive approach ensures a clear understanding of risks, growth potential, and post-merger integration needs. If you have any questions regarding M&A, please contact a Marsh McLennan Agency (MMA) advisor.
