Selling a business can be a challenging decision, especially for those who have nurtured it over the years and built a dedicated team of employees. One of the concerns that sellers often face is whether the new buyer will uphold their promise to take care of the employees. At the same time, the tire industry is witnessing an increasing trend of private equity firms acquiring tire dealerships, which creates additional concerns about what happens with employees after a sale.
Safeguarding Employee Interests after Selling
When selling a business, it is crucial for the seller to prioritize the welfare of their employees during the negotiation process. For many sellers, employees are the backbone of their business, and many key employees have helped the business owner build their business; ensuring that these critical persons are well taken care of is always a discussion point with sellers. Although there is no foolproof guarantee that the buyer will uphold their promises, the seller can adopt certain strategies to mitigate risks and foster a positive outcome:
- Engage in Open Communication: Have candid discussions with potential buyers about the importance of employee welfare and assess their commitment to honoring such promises. During the negotiation phase, sellers should clearly communicate their expectations about employee welfare to potential buyers.
- Conduct a Background Check on Potential Buyers: Vet potential buyers thoroughly to assess their reputation and track record with previous acquisitions. Look for indications that they have genuinely cared for employees in previous deals. Request references from other businesses the buyer has acquired in the past and reach out to them to gain insights into the buyer's treatment of employees after the purchase.
- Clearly Define Employee Protections: Incorporate clauses in the sales contract that specifically address the protection and treatment of employees. Clearly outline the responsibilities of the new owner to maintain existing benefits, job security, and a conducive work environment. A solid commitment to taking care of the employees can be included in the acquisition agreement as a binding clause, including:
- Employee Retention and Benefits: The seller can negotiate terms for employee retention incentives with the buyer, such as retention bonuses, continued benefits, or stock options in the new entity. These provisions encourage buyers to maintain the existing workforce and value their expertise.
- Escrow Accounts: To ensure that promised funds are used for employee welfare, sellers can negotiate the creation of an escrow account that holds a portion of the sale proceeds specifically designated for employee benefits. This account can be released to the buyer as they fulfill their commitments.
- Retain a Good Legal Team: Seek advice from experienced lawyers specializing in business acquisitions who can ensure the inclusion of robust employee protection clauses in the sales contract.
For sellers in the tire industry, ensuring the well-being of employees after a sale should be a top priority. While there are no guarantees, incorporating protective clauses, engaging in transparent communication, and thoroughly vetting potential buyers can increase the likelihood of a successful outcome. While it is impossible to guarantee the same exact culture to carry over with the new owners, finding the right buyer who shares a commitment to employee welfare will create a win-win situation for all parties involved.
Giorgio Andonian is a Managing Director in FOCUS Investment Banking’s Auto Aftermarket Group. With a lifetime spent in is family’s automotive business, he now advises and assists privately held middle market auto aftermarket companies with mergers and acquisitions. Contact Giorgio at [email protected].