www.pwc.com Human resource due diligence By Steve Rimmer and Aaron SanAndres, PwC

www.pwc.com Human resource due diligence By Steve Rimmer and Aaron SanAndres, PwC

Introduction Private equity firms entering into an acquisition look to identify material human resource risks early in the due diligence process. In this context, human resources refers to the target company s management team and broader employee talent pool, as well the programmes and infrastructure that helps the company to attract, retain and motivate that talent. Although identifying (and quantifying) human resource-related risks can be challenging, those tasked with leading the human resource due diligence process will ultimately need to ensure that any human resource risks are appropriately captured in the valuation model. Specifically, private equity firms will want to understand observations that have any earnings and balance sheet impact (or quality of earnings and debt-like adjustments, respectively), and whether any adjustments to the private equity firm s financial model are warranted. Financial risks specifically include material changes to the human resource-related run-rate costs of the target company, financial obligations triggered as a result of the contemplated transaction, and unfunded benefit plans. Operational risks might include high employee turnover, difficult labour relations, concern over cultural fit or change-management challenges/requirements. While these operational risks are often revealed during due diligence, they are typically addressed during the transition of ownership. As a result, while the authors have kept the primary focus in this chapter on financial risks, management assessment will also be covered in some depth given the criticality of a strong management team to a successful deal outcome. This chapter discusses typical due diligence practices utilised by US-based private equity firms when looking at US-based acquisitions. While the general principles covered here are applicable to almost any human resource due diligence, the potential issues that might arise in other jurisdictions are not fully covered here. Private equity firms tend to focus their human resource due diligence efforts around the following four areas, which can yield valuable insights and help to reveal any human resource-related red flags: 1. Employee demographics and key terms of employment. 2. Material compensation and benefit programmes. 3. Management talent assessment. 4. Human resource transition challenges. Employee demographics Understanding the target company s basic employee demographics is one of the first steps a private equity buyer will take. Although the level of detail covered during the due diligence process will vary by acquisition, at a minimum buyers will want to understand the following: how many employees does the target have and where are they located? Are any employees covered by collective bargaining agreements? For carve-out acquisitions, buyers will also want to understand what, if any, additional staff might be required to operate the business on a standalone basis. Private equity firms will also use these demographics to assess whether there is an opportunity to reduce the number of staff, to measure the savings achieved and the associated one-time cost, and to reflect this in their financial model. Employee location Knowing where the target company s employees work or reside can help the buyer to anticipate potential labour issues. In the US, a target company with significant numbers of staff in California, for example, may need to look closer into local labour law issues (such as the impact on existing noncompete arrangements). Material open positions Buyers will want to understand how a target company s turnover compares to industry norms and whether a material percentage of turnover is focused on one employee group or department. Private equity buyers will seek more detail around executive turnover and whether there were any material delays in hiring a replacement, as these events can often warrant adjustments to historical earnings. As an example, if the target recently hired a CFO whose annual cost (compensation and benefits) to the target company is approximately $400,000, buyers will want to burden the target company s profit and loss statement for the hypothetical full annual cost since the historical EBITDA would not reflect the additional costs of a CFO PwC Page 2 of 12

Employment terms/agreements The key terms of employment are generally contained in written agreements such as individual offer letters or employment agreements or, for unionised employees, a collectively bargained agreement. These agreements require careful review to ensure that financial implications and any change in control triggers for payment are fully understood. Some key issues for each employment agreement type are outlined below. Individual contracts Although generally reserved for executives, individual employment contracts often contain material financial obligations. For example, while most executive agreements have severance protections, if the individual is terminated without cause (or for good reason ), these obligations can increase in the case of terminations in connection with a change-incontrol (CIC) event. In addition, some executive agreements contain walk-away rights pursuant to which the occurrence of a sale transaction gives rise to a good-reason event. As well as severance protection, there may also be automatic payments that come due in a CIC event. The private equity firm will want to understand which payments are automatic on a CIC event and which are contingent on a subsequent termination, so that these obligations can be reflected in the schedule of cash requirements. Walk-away rights are typically reflected as an automatic payment for these purposes. In addition, it is important to understand whether the employment agreements contain gross-up entitlements for any golden parachute excise tax obligations that might arise under US Internal Revenue Code Section 280G. In general, Section 280G denies a corporate tax deduction for any excess parachute payment and the recipient of an excess parachute payment is also personally liable for excise tax at 20 percent of such payment (in addition to federal and state income tax due). Excess parachute payments exist if the total payments made in connection with the CIC event are equal to, or exceed, an amount equal to three times the recipient s average annual compensation over the five full calendar years that precede the year of the change of control. Generally, a payment is considered to be contingent on a CIC event if it would not have been made but for the CIC event. Note: A payment that would otherwise constitute a parachute payment with respect to a corporation whose stock is not traded on an established securities exchange will generally be exempt from the definition of a parachute payment under Section 280G, provided the payment is approved by 75 percent of the disinterested shareholders. From a practical perspective, it is still necessary to perform underlying golden parachute calculations in these situations but with the expectation that a qualifying shareholder vote will cleanse the situation. It is typical to perform calculations assuming both situations where no employees are terminated and where all employees are terminated. In some cases, the combination of automatic payments on a CIC event and any acceleration of equity on the CIC event can result in golden parachute thresholds being breached without a termination of employment. Retention/severance agreements Given the level of employee anxiety that often accompanies a CIC event, it is not uncommon for a company to implement a retention arrangement (or a severance protection plan) in anticipation of a sale. To the extent that retention payments will be made following the transaction (for example, 90 days following the closing of a sale), a buyer will typically expect to transfer the financial obligation for any retention obligations to the seller (that is, treat it as debt for valuation purposes). Note: Depending on how long beyond closing the retention payment is ultimately made (for example, where a portion is paid on the CIC event and a portion one year following the CIC, assuming continuation of employment), the seller may look to split the cost with the buyer, since the buyer will benefit from increased retention. PwC Page 3 of 12

Collectively bargained agreements Private equity buyers will want to confirm that the target company s financial projections include any scheduled increases in wages required under collectively bargained agreements (CBAs). Buyers will also want to understand what, if any, formal consultation requirements exist as they relate to unions or to work councils. To the extent that any CBAs are set to expire, private equity firms will want to understand the key areas of anticipated negotiation and expected outcome. Additionally, to the extent union employees participate in a multiemployer pension plan, it is important to understand the withdrawal liability of the potential multiemployer plan. In general, a withdrawal liability is triggered when a company withdraws from a multiemployer pension plan, but the employer is required to continue to make cash contributions to help fund the plan s liability for vested benefits. Contingent withdrawal obligations from multi-employer plans are not typically reflected in the balance sheet. Note: Carve-out transactions pose an additional layer of complexity around union contracts. This is because the buyer will likely need to enter into separate, standalone contracts following the closing of the proposed sale. Accordingly, private equity buyers will generally want to look more closely at the nature of the target company s relationship with the union to anticipate whether contemplated changes (however minor) will complicate the negotiation around the new agreements. Specific areas to review include any history of work stoppages or strikes, the existence of a social plan (typical in Europe, where such plans define the process and cost for any employee terminations) and the history of the management team s success in negotiating prior changes in terms and conditions. Understanding the target s compensation structure Employee compensation is often one of the largest, single costs a company will incur during the course of conducting business. This is why private equity buyers are keen to understand a target company s compensation programmes early in the due diligence process. A change in ownership may result in the acceleration of payment of certain compensation arrangements. Establishing the amounts involved and potential payment triggers, the timing of payment and who will bear the financial responsibility for making such payments is a critical part of the due diligence process. A typical practice is to prepare an exhibit detailing, for each key executive, the material compensation structures, the payments that will be triggered by the closing of the transaction, and how those payments will differ if the individual's employment is terminated. Table 1 presents an example of the potential termination costs and the magnitude of payments across the target company s executive team. PwC Page 4 of 12

Table 1: Example of potential executive termination costs in a portfolio company Executive Title Salary Bonus Cashout of Equity Awards A B C E F President and CEO Chief Operating Officer Chief Financial Officer Chief Admin Officer EVP Sales & Marketing CIC-Related Payment Cash Severance 280G Gross-up Payment Total CIC Payment 520 100% 4,000 4,000 2,400 10,400 367 85% 3,400 3,400 2,100 8,900 350 50% 2,000 2,000 1,200 5,200 250 50% 1,700 1,700 1,700 4,400 220 50% 1,400 1,250 700 3,350 Total 12,500 12,350 7,400 32,500 Notes: 1. Cash out of equity awards represents the aggregate spread value (i.e., difference between deal price and exercise price, if any) on all outstanding equity awards (both vested and unvested). 2. Cash severance represents the obligations to the executive if they were to be terminated by the Company without cause in connection with the current transaction and includes the sum of: (1) 1-3x highest compensation earned in the past 3 years (i.e., base + bonus), (2) payout of executive s unfunded deferred compensation balances, (3) continued participation in the Company s medical plans for a period of 1-2 years and (4) payout of accrued vacation balances. 3. The 280G gross-up payment represents the cash payment required to pay for the executives 20% excise tax under IRC Section 280G/4999 inclusive of any taxes due on the gross-up payment itself (i.e., an iterative calculation). Compensation is typically comprised of a base salary, an annual incentive and, if applicable, a long-term incentive. However, the way in which employees are compensated (structure) and the resulting pay mix (fixed versus variable compensation) can vary widely by level and by industry. Understanding key compensation programmes can yield valuable insights into a firm s culture and behaviours, as well as help the buyer to assess whether the firm has properly reflected the costs of these programmes for financial statement purposes. One key due diligence question is: how do executive salaries compare to market levels? Financial sponsors will expect salaries to fall within a reasonable range of market median levels (for example, +/- 15 percent), unless there is a clear rationale for an alternative compensation philosophy. Companies with high salary levels typically put less weighting on variable compensation and will likely require a shift in the pay mix in order to align with the pay-forperformance structure private equity firms prefer. This shift will often involve freezing or reducing (far less common) base salary and increasing the cash bonus or the long-term incentive elements. Understanding how the target establishes its annual bonus pool and how much discretion is embedded into the process are important due diligence areas to address. Companies with significant amounts of discretion in their annual incentive process deserve special attention during due diligence. Private equity firms will generally look to increase transparency and exert control over this process, at least in terms of funding for given levels of performance. Another area to understand is how the company has accrued for PwC Page 5 of 12

expected bonus payments and whether the accrual will adversely impact working-capital estimates. Long-term incentives, generally defined as any compensation earned over a period longer than one year, are of particular interest to private equity buyers. Profit and loss expense associated with stockbased compensation is typically added back from a quality of earnings perspective. Private equity firms will focus on understanding: Depth of the awards (that is, how many employees participate). Treatment of unvested long-term incentive awards. Where a target company has historically granted equity deep within the organisation beyond the level of participation expected under private equity ownership private equity buyers will determine whether it is necessary to budget a replacement cost for those employees most adversely affected by the loss of a long-term incentive. The structure of the contemplated replacement plan (for example, annual cash payments versus cash payment on a CIC event) should be reflected in the private equity buyer's financial model. Change-in-control event There are generally three potential ways to treat unvested awards on a CIC: 1. Immediate vesting. 2. Vesting only to the extent the awards are not assumed by the buyer. 3. Company s board has discretion on what treatment to apply. The potential payouts from long-term incentive plans such as stock options and restricted stock will vary considerably depending on the industry and size of the target company. As an illustration, if the target company is owned by another private equity firm, the top executives may share in about 10 percent of the company s overall equity value (with the CEO holding about 3 percent of the fully diluted equity). Not surprisingly, private equity buyers would prefer that unvested awards not vest on a CIC event because it allows them to use the unvested value as a pure-play retention plan, in addition to serving as an effective source of equity financing. In carve-out transactions, it is not uncommon for target employees who hold equity in the parent entity to forfeit unvested awards on the sale. This lost value will often become a discussion point between the private equity buyer and the seller. Understanding the target s benefit plans Employee benefits represent a significant percentage of overall employee cost, typically between 15 percent and 30 percent of total salaries in the US. This range reflects the prevalence of employer-provided benefits. Outside the US, where benefit provision is typically more statutory in nature, benefits often comprise a lower percentage of overall costs, but are often more than compensated for by higher social costs (particularly in Europe). Where benefit costs include a significant component that relates to the provision of healthcare benefits, it is appropriate to recognise that such costs increase at a much higher rate than salaries. Accordingly, it may be appropriate to increase the compound annual growth rate (CAGR) for benefits by an extra 1 percent above the CAGR which applies for salaries where such healthcare benefit costs apply. The three key due diligence considerations for benefits are: 1. What type of benefit plans does the target company provide? 2. How is the cost of these programmes reflected in the financial statements? 3. What impact, if any, will the proposed transaction have on benefit plan participation and/or cash contributions to the benefit plans? In the US, key employee benefits comprise retirement and healthcare benefits. Retirement benefits Retirement plans generally come in two flavours: defined contribution plans and defined benefit plans. A defined-benefit plan (DB plan) will guarantee a specified payout at retirement according to a fixed formula (generally tied to the employee s salary and years of service). A defined-contribution plan (DC plan), on the other hand, will provide a payout at retirement that is dependent on the amount of money contributed by the employee and company (for example, through matching contributions) and the performance of the investment vehicles utilised. PwC Page 6 of 12

Due to the financial risks involved, private equity buyers are generally uneasy when it comes to DB plans. The profit and loss expense in any given year generally bears little resemblance to cash contributions to the plan. Moreover, any funding deficit recorded in the target company s balance sheet reflects actuarial assumptions (such as the discount rate) that can be up to 12 months old. Given the importance of modelling cash requirements, private equity buyers will generally want to refresh the numbers using current assumptions around interest rates, asset performance and mortality. A current view of the funding deficit and updated estimate of cash contribution requirements is imperative, especially in light of the falling interest rate environment experienced over the last few years. Buyers will often treat the current funding deficit as a debt-like item for valuation purposes. DC plans carry significantly less financial risk for the buyer since they cannot be underfunded. Therefore, risks for DC plans tend be compliance-related; buyers typically limit their exposure by adding standard seller warranties around plan compliance to the purchase agreement. Healthcare benefits Healthcare costs continue to be one of the fastestgrowing areas of employee costs, with annual increases averaging 9 percent in 2011 according to PwC s Touchstone Survey. 11 In the US, companies are now required to comply with a number of changes under the Patient Protection and Affordable Care Act (PPACA), which was signed into law by President Obama in 2011. One significant provision of PPACA is known as the individual mandate which requires all employers to, by 2014, provide medical coverage that is adequate and affordable to virtually all employees who work 30 hours or more per week. The individual mandate would also impose a penalty to any individual who does not have medical coverage. As a result, participation in medical plans is expected to increase starting in 2014, and the associated potential increase in costs is an item on which private equity firms will focus. Please note that as of the time of writing, the US Supreme Court is currently debating the constitutionality of the individual mandate described above. Key non-us considerations Although the impact on employee-benefit plans outside of the US is beyond the scope of this chapter, the authors have identified the key issues that tend to arise in some of Europe s largest countries. UK. DB plans potentially face significant cash contributions (effectively requiring funding on a plan-termination basis) if the plan trustee determines that the plan s funding will be jeopardised due to a perceived deterioration in the strength of the pensions covenant as a result of the transaction. Germany. Companies typically sponsor defined benefits (for example, pensions, early retirement benefits and long-service awards), which are largely unfunded. Future cash contributions will depend on the demographics of the target population. France and Italy. Termination indemnities are mandated. These are generally unfunded and should be provided for on the balance sheet and taken into consideration when valuing the business. Management talent assessment In private equity deals, the approach to management assessment will very much depend on the nature of the deal. In a carve-out deal, certain executive functions (for example, legal, human resource and finance) may not have all the necessary experience to operate under the level of oversight that private equity ownership typically entails. Certainly, an executive team that has already experienced a cycle of private equity ownership will be much better prepared than an executive team that has not. For a public company to be taken private, the presumption is often that an effective management team is largely in place but that certain functions may not be needed in a non-public environment (for example, investor relations). Where the acquisition is an add-on purchase to an existing portfolio company, there may be a need for a selection process to ensure that the private equity firm takes advantage of the opportunity to improve the talent in the existing portfolio company together with selected members of the target s management team. 1 Available at http://www.pwc.com/en_us/us/hr- management/publications/health-wellness-touchstone-survey- 2012-form.jhtml. PwC Page 7 of 12

Talent in a portfolio company correlates strongly to the potential growth in enterprise value. The importance of a fully functional executive team cannot be overstated in this context as any delay in achieving an exit due to a lack of cohesion among the management team has a serious financial consequence. At a minimum, the private equity firm should identify during due diligence any management member who is not a good fit, who clearly needs to be upgraded, or who may be at risk of leaving the company based on the value of his/her vested equity or other compensation arising from the transaction. The time frame needed to bring in a replacement should be considered and appropriate retention incentives developed to keep the outgoing executive in place until the position is filled. Private equity firms will often use a search agency to prepare job descriptions, screen candidates and present a slate of acceptable candidates to be interviewed by a selection committee, which might include the operating partner in charge of the transaction and the CEO of the business. The pool of candidates can often be supplemented by leveraging the executives existing industry contacts. The importance of a consistent but flexible selection process cannot be understated. As a baseline, private equity firms typically conduct thorough background checks on incumbents and potential hires to ensure they have no history of fraudulent activity or questionable business relationships. Candidate selection is typically based on a combination of experience, management competencies and fit, both for the open position and for the organisation under private equity ownership. The core business drivers underlying the investment thesis can be used to create a scorecard with role-specific accountabilities identified. Ideally, the same principles used for assessing external hires should be applied when comparing two incumbents. The process used to assess incumbent management talent varies by private equity firm. In some cases, the assessment is more informal and achieved during the course of the numerous conversations and private meetings that occur with the management team during due diligence. For key functional roles such as legal and financial, private equity firms will often ask their advisers for an informal opinion of the individual's fit for the role based on their command of issues during due diligence. As more private equity firms focus on operational improvement, they have added operating partners who will oversee the management team. Often, these operating partners, along with the lead deal partner, will be at the heart of the management assessment. In these cases, assessment is a more formal process, with a structured individual interview of each member of the senior management team. The questions are driven by the specific role the individual plays and the competencies that will need to be demonstrated to be successful in that role. The questions will also seek to identify the likely cultural fit with the private equity firm. In any private equity assessment, there will typically be plenty of room for intangibles. For example, an executive who complains during due diligence about the volume of information requests, who appears stressed, who is not consistent in answering questions or who is just difficult to establish rapport with will likely continue to be difficult once the deal is signed. Often, the individual is also asked about other members of management and the views given are used to triangulate assessments and to get a sense of overall management cohesion. The assessments may result in a high-level classification of each management team member. Examples of these classifications include: Essential to the success of business. Important in the short-term transition but future importance undecided. Essential only in the short-term transition; no long-term role. Not required at all. The outcome in each case will determine the approach to setting management compensation packages, including equity incentives and retention/severance payments. In the authors experience, it is rare for private equity to use assessment centres or psychometric tests to assess management talent. Private equity firms prefer to be directly involved in assessing management talent. PwC Page 8 of 12

Understanding human resource transition challenges Although the discussion of human resource transition is left to the end of this chapter, it is a process that typically begins on commencement of the human resource due diligence, particularly where the target company is a carve-out from a larger parent company or where there is a bolt-on or an add-on acquisition. A key question to consider is: how might the target company's human resource-related run-rate costs change following the transaction? The private equity firm will want to know the run-rate and one-time cost implications of alignment of: Benefits. Compensation. Human resource operating platform. Human resource function. The transition challenge involved depends on the situation. Standalone company In the simplest scenario, when acquiring a freestanding, standalone company, the starting proposition may be that not much will change. The key challenges are to: Get management and employees comfortable with the positive aspects of private equity ownership through strong communications and change management. Establish a clear picture of what is required to succeed and ensure compensation plans support this goal. Exert financial and operational control based on the specific style applied by the private equity firm. However, even in such standalone situations, there may be operational synergies to be achieved by benchmarking human resource effectiveness across an array of metrics and by identifying opportunities for improvement. In addition, the existing organisation may be in a multi-year cycle of human resource development (for example, implementing a new human resource information system). The private equity firm will want to understand what activities are planned and the likely cost, to ensure they are still appropriate. Add-on acquisitions Sizeable add-on acquisitions to existing portfolio companies can represent the most challenging of situations. In this case, there will need to be a clear picture of the degree of operational integration in practice. In a situation where the business case assumes significant operational synergy, it will be necessary to: Align organisational structures as each company has its own organisational structure. It cannot be assumed that the structure in place for either company will be efficient once the two companies are combined. Streamline management to eliminate duplicate positions after a suitable transition period. While the presumption is that the private equity firm is satisfied with the management team at the existing portfolio company, there may be an opportunity as a result of the add-on acquisition to upgrade talent and fill open positions. Effective assessment of talent is fundamental to these situations. Move to one human resource operating platform. This can remove duplicate costs for payroll and human resource information systems. Develop a unified compensation and benefits platform. Benefits alignment can be particularly challenging if there are significant differences in the underlying benefit platforms between the two companies, such as the existence of defined benefit or retiree medical plans in one company but not the other. The bulk of the effort around compensation alignment will be to ensure that salaries are reasonably consistent for similarly placed individuals and that incentives are aligned quickly around key financial and operational goals. Carve-out deals Carve-out situations are a middle ground and represent their own unique challenges. During due diligence, the focus will be on understanding human resource cost allocations and comparing these allocations to the expected run-rate costs of operating the new human resource infrastructure on a standalone basis. As the company may not have a freestanding human resource infrastructure, it may be necessary to create one. There are a number of key aspects to this end: PwC Page 9 of 12

Develop a human resource operational structure. This includes a decision on which services will be performed in-house and which will be outsourced. Examples of services typically considered for outsourcing include payroll, benefits administration, talent sourcing and employee surveys. Establish an effective human resource function with the skills to operate independently. This could involve adding a vice president of human resources, a compensation director, a benefits manager, a payroll manager (if not outsourced) and potentially a few human resource generalists. The cost of these additional positions will need to be factored into the financial model. Select vendors to deliver outsourced services. The most critical of these outsourced services are payroll and the human resource information system. With the advent of cloud computing, new vendors and service solutions are coming to the market, which allow more flexibility and quicker platform establishment. This is a significant area of activity in current carve-out deals. Establish benefit programmes. Health, welfare and retirement plans are the most significant of benefit programmes. Many private equity firms prefer DC plans as they have less risk and are simpler to establish. Due to their complexity, the establishment of medical plans in particular involves a lot of effort; private equity firms will often lean heavily on vendors and other advisers to assist in establishing these plans. Private equity generally prefers to preserve flexibility to simplify the benefits offered with specific language included in the purchase agreement. For all of the above types of acquisitions, the onetime cost of establishment of a new human resource infrastructure, as well as the future run-rate costs, need to be determined as part of due diligence and factored into the valuation model. Due to the time taken to establish a new human resource infrastructure and the often rapid time frames between signing and transaction close, private equity buyers typically ensure that human resource services are covered under a transition services agreement (TSA) for up to six months following the close of the deal. The goal is to quickly establish a freestanding human resource infrastructure including a human resource information system, payroll and benefits and move as quickly as possible away from delivery of these services under the TSA. Conclusion The financial risks associated with human resources may have a significant impact on the valuation and ultimate purchase price the buyer is willing to pay for the target company. However, it would be shortsighted to focus only on financial risks. The assessment of management talent and navigation of human resource transition challenges will drive the success and economics of the portfolio company during private equity ownership, and are therefore instrumental in maximising the buyer s ultimate return on investment. Author biographies Steve Rimmer is the global network leader of PwC's Human Resources Transaction Services practice, and specializes in the human resource aspects of mergers, acquisitions and spin-offs. Steve has 28 years of human resource consulting experience, with a heavy emphasis on conducting human resource due diligence and addressing integration issues arising on corporate transactions. Steve has worked with numerous leading corporate and private equity clients. He spends a significant amount of his time advising clients on compensation issues, including market competitiveness, retention strategies and design, and implementation of equity compensation programmes. He has published a survey of equity compensation practices among private equity portfolio companies. Steve has been at PricewaterhouseCoopers for 23 years, including 18 years in New York and five years in London. Prior to joining PwC, he worked for Bacon and Woodrow, a leading UK firm of actuaries. Steve is a UK qualified actuary, a Certified Compensation Professional and has an MBA from Manchester University in the UK. Aaron SanAndres is a partner in PwC's Human Resources Transaction Services practice in New York. He has 13 years of professional experience in human resource consulting. He specialises in providing human resource transaction advisory services to both strategic and financial buyers and specialises in the financial services industry. Aaron s core expertise lies PwC Page 10 of 12

in the design, tax and accounting aspects of executive compensation. He spends a significant amount of his time advising his services clients on post-acquisition executive compensation issues. Aaron has written a number of articles around human capital issues within the asset management industry, most recently including the 2011 Asset Management Reward and Talent Management Survey and a white paper on human capital issues in asset management M&A. Aaron received his MBA, with honours, from Columbia Business School. PwC Page 11 of 12

This article was first published in Private Equity Company Due Diligence by PEI. For more information about this publication, please see http://www.peimedia.com/companydd. 2012 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.