Human capital & corporate risk
Buy & build strategies often focus on financial and legal due diligence. However, at Kröller Boom, we see that one crucial component is structurally underestimated: the financial impact of Human Capital. While the “human factor” is often described as soft, the associated liabilities and risks are tough — and can significantly influence the value of a deal.
Absenteeism costs go beyond just continued payment of wages. Examples include loss of productivity, replacement costs, increased employer costs and possible wage penalties in case of non-compliance with legislation. In a buy & build context, where scaling is key, these risks can accumulate rapidly. A thorough analysis of absenteeism data is essential to prevent financial surprises.
The introduction of the new pension system has significant financial and legal implications. Transition obligations, compensation arrangements and harmonization issues can significantly influence the balance of a target. Without insight into these obligations, you run the risk of unexpected charges after closing.
The Employment Resumption Fund (WHK) is often not sufficiently taken into account in merger and consolidation processes. When merging (smaller) entities into one larger employer, WHK contributions can increase significantly, because recalculation takes place on the basis of historical compensation. This can lead to structural additional costs that amount to tens of thousands of euros per year.
The self-risk carrier for the Sickness Act and WGA is essential in takeover processes. For example, if the buying party is a self-risk carrier for the WGA and the selling party is not, any WGA claims will be attributed directly to the buyer. The buyer cannot claim it under his insurance. Allocating a WGA benefit to an employer can last up to ten years. One employee with a long-term disability can therefore lead to an additional cost of several hundred thousand euros.
Collective agreements involve direct obligations. Compulsory affiliation with industry-wide pension funds, overdue contributions and harmonization of employment conditions can lead to substantial claims and reputational risks. Especially in the case of sectoral acquisitions, this is a point of attention that should not be missing in due diligence.
Kröller Boom supports private equity parties and their portfolio companies with specialized Insurance Due Diligence, which includes Human Capital Due Diligence. Our approach identifies hidden obligations and future costs — from absenteeism to retirement, from WHK to collective labor agreement. This gives you a grip on risks that directly affect the deal value and the company's future performance.
Of course, our services can be fully customized, tailored to the specific characteristics of the transaction and the organization.
Are you involved in an acquisition, integration or buy & build strategy within your company? Our specialists are happy to help you.
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