People problems are the primary cause of disappointing business acquisitions. 

 Even acquisitions that generate large profits can have detrimental results if the employees can't work together or trust each other. 

 And, it's easy for the CEO of the acquiring company to misjudge how well the two employee groups will fit together. 

 For relatively small acquisitions, Buyers expect to incur at least $50,000 to $100,000, in fees for attorneys, accountants, appraisers and engineers to evaluate the records and tangible assets of the company being purchased.  However, very little is allocated to evaluating the people being relied upon to make the acquisition a success.  Instead, the opinions provided by the target company's upper management and the acquiring CEO's  own opinions derived from very brief visits are frequently relied upon.  

 Many articles have been written about the difficulties of combining the employees of two companies.  But, few suggest the primary obligation of the buying CEO is to assess how the employees of the company being acquired will fit with his company.  If the CEO fails to successfully apply his judgment and people skills to this, it can cause problems for the acquired employees, and harm personal relationships within the parent company.  

 During the initial or courting stage, the CEOs of the two companies typically talk at length about products, markets, facilities and how their employees will fit together in an organizational reporting manner.  Often, it is during this courting stage that the acquiring CEO forms his perceptions about the employees of the target company.  

 Once the acquisition process is in full swing, the CEO becomes preoccupied with the complex legal, accounting, finance, environmental, and employee benefits issues associated with combining the two companies.  Any meaningful evaluation of the employees frequently gets overlooked in the headstrong push to reach the closing.  

 Somewhere between the Letter of Intent and the first draft of the Purchase Agreement assumptions are made about the compatibility of the two employee groups.  These assumptions rarely get compared to reality until after closing.  This can be costly.  

 The timing of the first mention of using employee assessments in due diligence is crucial.  If broached after the Letter of Intent stage, the selling CEO may feel it's only a ploy to get out of the deal.  In order not to disrupt the acquisition process, the buying CEO needs to mention during the courting stage his desire to use employee assessments as part of the due diligence process.  

 If the buying CEO proposes that it be done at his company's expense by an outside professional with the selling CEO also receiving the results, resistance will be reduced.  Most CEOs are often quite proud of the team they have put together and welcome confirmation by an outside professional.  

 Other selling CEOs may agree in concept, but be reluctant to ask their employees to participate in the assessment process until they become more certain that a closing will likely occur.  This usually indicates the selling CEO is mistrustful of the buyer's motives or just  doubts the buyer's financial ability to complete the deal.  In these situations, the employee assessments may have to occur toward the end of the due diligence process.  Depending upon the size of the company being acquired, these employee assessments might typically include:  

  (1) in depth interviews, simulations and assessments of top management as if they were being considered for employment,  

  (2) similar but more limited interviews and assessments of middle managers,

  (3) and in some cases, a confidential, mailed-in attitudes survey of other employees.

This may appear to be an expensive process, but it will not typically cost as much as having your CPA firm verify the existence of the inventory and other tangible assets.  It will also be less expensive than a failure caused by people problems that can be avoided.  If you are acquiring a personal service business, not assessing the employees is incomplete due diligence work.  The employees are the major assets, and their attitudes, values and motivations are important.  The benefits of doing the employee assessments appear to outweigh the costs.  

 The famous management expert Peter F. Drucker said;  

"Most executives considered to be good judges of people have a common characteristic: They decided long ago that they weren't good judges of people   
and rely on diagnostic techniques to help them decide."