Acquisitions: What You Need to Remember

Whether looking for an increase in revenue, improved profitability, expanded market share or an expansion of new products or services, the acquisition of companies is common practice in today's fast-paced business environment. No matter how strategic or opportunistic the acquisition is intended to be, there are always concerns and potential hidden liabilities—especially concerning personnel.

Cultural integration of employees and potential conflict with new management pose one common concern, but what may be frequently overlooked during the early post-acquisition days is employee compliance with new company policies and standards. Although you may have stringent and comprehensive background screening requirements to ensure the safety of your workplace and the integrity of your employees, the acquired company may not have required a similar level of due diligence on their personnel, thereby opening you up to potential liability.

Particularly in situations where a smaller private organization is acquired, the likelihood that background screening has not been performed on personnel increases. In such a case, the concept of adverse selection may apply. The concept of adverse selection identifies non-screening organizations as a haven for those who might not be employable by the screening standards of larger organizations. For instance, individuals with a felony conviction in their background may select an organization without a formalized background screening program to increase their likelihood of getting a job.

A bad hire maintained on staff can lead to immense challenges and potential workplace safety issues. Overlooking even one dangerous employee once they are merged into your company may jeopardize the entire organization. Workplace violence, theft and lawsuits are only a few of the possible negative outcomes of a bad hire, and walking into a large population with unknown backgrounds could exacerbate the already complicated process of acquiring a company.

To avoid the potential liability of an unscreened population, keep in mind that no assurances exist that the screening processes previously in place at the acquired company were applied consistently and with a high level of accuracy. During the acquisition process, ensure that you understand fully what steps the company has previously taken to safeguard the population and what universal standards apply. To reduce risk, many organizations decide to universally screen the acquisition employee population to the same standards as their own.

Mergers and acquisitions bring with them inherent risks within the existing employee population, so be sure to take adequate precautions so that your purchase doesn't come with any unwelcome surprises. Applying a consistent employment screening program throughout the acquired employee population can help you avoid unnecessary headaches.

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