Human Capital during Acquisition -The consideration and valuation of human capital in knowledge-based companies
Purpose: The purpose of this thesis is to enhance the understanding of whether human capital is considered and valued during acquisitions of knowledge-‐based companies and, if it is taken into account, how it is considered and how the valuation is performed. The purpose is further to investigate why human capital is valued in this way and how an acquisition is affected by taking human capital into consideration. Method: To achieve the purpose of this thesis, data was collected through qualitative, semi-‐structural interviews with the four largest audit firms, Deloitte, PwC, Ernst & Young and KPMG. The respondents are experts on company valuation with a great experience from acquisitions and one respondent is an expert on human resources due diligence. The approach of this thesis is descriptive and aims to describe the current condition within the research area. Result: This thesis concludes that human capital is valued indirectly as a part of the total company valuation. The valuation is performed using discounted cash flows (DCF) and the market approach simultaneously. The valuation includes several assessments made by the appraiser and thus the value of the company includes subjectivity. The valuation of a knowledge-‐based company is not performed differently than a valuation of other sorts of companies but there are specific risks that need to be estimated. Possible explanations as to why these valuation approaches are used could be found in functional fixation, institutional theory and normative isomorphism. Human capital is further considered during the integration process. The integration is important in order to achieve all expected synergies and thus make the acquisition successful. Contribution: This thesis is valuable for stakeholders in order to invest in a knowledge-‐ based company since the required information to determine the risks of the company is often not available. Further, the thesis is of value for potential investors in order to enhance the understanding of the difficulty of seeing human capital as an asset and what to keep in mind when acquiring a knowledge-‐based company. The thesis is further valuable for all people seeking to enhance their understanding of how the valuation of human capital is performed during acquisitions.