BUSINESS CAPABILITIES AND HR KNOWLEDGE’ AS THE CRITICAL FACTOR OF DUE DILIGENCE IN PRE-ACQUISITION PHASE

Abstract

Previous theoretical research has argued that due diligence in the pre-acquisition phase is traditionally oriented towards legal and financial matters. However, in the innovation-driven market environment, where firms need to maintain competitive strength, business skills and knowledge play important roles. Despite this difference, the due diligence research continues in traditional areas, e.g., financial history, legal and commercial liabilities, and tax issues. Hence, the problem may arise in acquirers overpaying or mistakenly rejecting a target firm. There is a need for assessing ‘Business Capabilities and Human Resources Knowledge’ for due diligence in the pre-acquisition phase. Based on a fundamental review of critical factors in mergers and acquisitions, this study seeks to examine the inclusion of this factor in due diligence during pre-acquisition. The research method includes a cross-sectional survey among firms with cross-border acquisition experience. The results of the empirical research provide reasonable support towards the organizational learning theory, suggesting that the more the acquirer learns about the critical factor, “Business Capabilities and Human Resources Knowledge”, the better the acquisition success. These results highlight the importance of expanding the traditional due diligence view by including this critical factor as the integral part of the pre-acquisition investigation.