HR Due Diligence: Why the People Review Determines Investment Value

When investors evaluate an acquisition, attention is typically focused on financial statements, legal structure, and regulatory risks. Yet time and again, we see that the most critical gaps lie within the people and the organization. HR Due Diligence is not a “soft” process; it is a rigorous assessment of business risk and the organization’s ability to realize value post-acquisition.

In a recent HR Due Diligence project, we conducted for an investor acquiring a Medical Devices company, alongside financial and legal due diligence, it became clear how deeply people, structure, and culture influence investment decisions, particularly in global organizations with sites in both Israel and Germany.

HR Due Diligence Goes Beyond Contracts and Compensation

A high-quality HR Due Diligence does far more than review employment contracts, compensation, and benefits. It examines:

• Organizational structure and leadership depth

• Dependency on critical talent and knowledge management

• Gaps between written policies and day-to-day practices

• Employment law and compliance risks

  
  

  Cultural gaps and cross-border communication patterns

In this case, a significant part of the review focused on the interface between the Israeli and German sites, including decision-making processes, information flow, levels of formality, and expectations between leadership teams and employees. These issues rarely appear on financial statements, yet they directly affect execution speed, product development quality, and post-acquisition integration.

The Three Gaps Investors Must Identify Early

Research by McKinsey provides a powerful framework for understanding productivity and value loss in organizations, one that is highly relevant to HR Due Diligence:

Skill Gap - Capability GapsThe gap between the skills available in the organization and those required for future growth. In our review, we identified a lean R&D function heavily reliant on external contractors who hold critical knowledge outside the organization. For an investor, this represents a material risk: knowledge that is not embedded internally undermines continuity, scalability, and long-term valuation.

Will Gap - Engagement, Trust, and MotivationEven when skills exist, low engagement or weak trust can drive post-acquisition attrition. Cultural differences can intensify this gap. Our assessment examined how a fast-paced, direct communication style typical of Israel interacts with a more formal, structured, and hierarchical German work culture. Without conscious management, these differences can create friction, erode trust, and slow decision-making - especially following a change in ownership.

Time Gap - Time Spent on Non-Non-Value-Creating Work Misaligned processes, unclear decision rights, and cross-site coordination challenges often result in hidden productivity loss. HR Due Diligence helps surface where organizational time and energy are being drained—long before delays and performance issues become visible at the business level.

Cross-Cultural Gaps as a Business Risk

In global organizations, cultural and communication gaps are not “soft issues.” They directly impact:

• Collaboration between R&D and operational teams

• Speed and quality of decision-making

• Transparency and trust between sites and leadership

• The organization’s ability to implement change post-acquisition

For investors, identifying these gaps early enables proactive mitigation through clear operating models, defined interfaces, and aligned global leadership practices.

HR Due Diligence as a Tool for Risk Management and Value Creation

As emphasized by Josh Bersin, leading organizations treat HR as a value engine rather than a support function. For investors, the implication is clear:HR Due Diligence is not only about avoiding surprises, but it is also the foundation for a post-acquisition value creation plan, including talent retention, capability building, knowledge transfer, and effective management of global complexity.

According to McKinsey, productivity and capability gaps can cost organizations significant value over time. Identifying these risks early allows investors to price deals more accurately and design smarter integration strategies.

Three Key Takeaways for Investors

• HR Due Diligence assesses culture and communication-not just contracts and compensation

• Cross-site and cross-country gaps represent real business risk

• Skills, engagement, and productivity are critical drivers of post-acquisition value

  
  

Conclusion Assessing people, organizational structure, and culture is essential to the success of any acquisition, particularly in global companies. Investors who bring HR Due Diligence to the table early protect their investment and significantly increase the likelihood of sustainable growth after the deal closes.

We support investors and companies through HR Due Diligence processes, bringing deep expertise at the intersection of people, culture, risk, and business value.

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Sylvia & Michal