Introduction

Mergers and acquisitions (M&A) in Indonesia are not only about financial valuations and legal compliance. Human resources (HR) often play a decisive role in determining the success or failure of the transaction. From employee contracts to industrial relations, overlooking HR due diligence can lead to costly disputes and cultural clashes post-merger.

Key Issues / Concepts

The HR due diligence process focuses on several critical areas:

• Employment Contracts & Benefits: Reviewing permanent and fixed-term contracts (PKWT/PKWTT), compensation structures, and benefit entitlements such as BPJS, THR, and severance pay.
• Industrial Relations: Identifying the presence of unions and any active collective labor agreements (PKB).
• Compliance Risks: Checking adherence to labor laws, expatriate employment permits (IMTA/KITAS), and workplace safety obligations.
• Cultural Integration: Assessing organizational culture differences that may affect integration.

Legal Framework in Indonesia

The main legal framework includes:

• Law No. 13 of 2003 on Manpower (as amended by the Omnibus Law – Law No. 11 of 2020)
• Government Regulation No. 35 of 2021 on PKWT, Outsourcing, Working Hours, and Termination
• Law No. 40 of 2007 on Limited Liability Companies
• OJK regulations for listed companies involving workforce disclosures in M&A processes.

Real Case

In 2018, the acquisition of PT Bank Danamon Indonesia Tbk by MUFG Bank highlighted the complexity of HR due diligence. The transaction required extensive negotiations with regulators and employee representatives to ensure compliance with employment laws while managing cultural alignment between Japanese and Indonesian workforces.

Best Practices for Employers

• Conduct Comprehensive HR Audits: Covering contracts, payroll, benefits, and compliance.
• Engage with Unions Early: To anticipate and mitigate resistance.
• Plan for Cultural Integration: Invest in change management programs.
• Legal Consultation: Work closely with local labor law experts to ensure compliance.

Conclusion

In Indonesia, HR due diligence is a strategic necessity, not a formality. Addressing employment, compliance, and cultural issues upfront helps secure smoother integration and sustainable growth post-M&A.

References

• Law No. 13 of 2003 (Manpower Law, as amended by Law No. 11/2020 Omnibus Law).
• Government Regulation No. 35/2021 on Employment Agreements and Termination.
• Law No. 40/2007 on Limited Liability Companies.
• OJK (Financial Services Authority) Regulations.
• Case study: MUFG acquisition of PT Bank Danamon Indonesia Tbk (2018).