The best leaders are those who serve their employees, and in doing so, create a culture that values employees by building authentic relationships. FOCUS Investment Banking frequently represents entrepreneurs and family business owners who have close relationships with their employees. A common issue for owners is how to ensure their employees are treated fairly and have opportunities in their roles under new ownership or management, post-transaction. Employees know how the business works, have often worked hard to facilitate positive, productive relationships with clients, and are, in summary, an essential part of maintaining a business’ functionality, reputation, and efficiency. It is in the interest of both buyer and seller to make the path forward attractive for the employees.
The single most important thing a seller can do is to choose a buyer wisely, and this means asking questions. It may take time and tact to gather the intelligence, but it is worth the effort. Is the plan to integrate the acquired company into the buyer’s existing operations or is the intent to operate it as a stand-alone? Is the buyer going to take over some back-office functions such as accounting or IT? Are there employees they intend to replace or roles the plan to eliminate? What kinds of development and growth opportunities might there be for current staff?
Remember that the early stages of buyer conversations are akin to dating; in the beginning, everyone is on their best behavior and will say all of the right things. The best indication for how a buyer handles existing employees will always be how the buyer has behaved in the past. As a seller, you should thoroughly vet how they’ve handled previous acquisitions, which includes talking, if possible, with the owners and employees of previously acquired companies. If you can, find out key employee metrics such as employee turnover, as a high turnover rate can be indicative of an issue within the buyer’s company culture. Gathering factual information is an effective counterpoint to initial assumptions you may make about a buyer when emotions are high.
To change the dynamic, sellers should instead prioritize shared employee retention agreements. For example, sellers can work with buyers to share the expense of giving key employees a bonus to stay with the business for some period of time, such as one to two years post-closing. This ensures that the business continues to run effectively and provides key employees with a financial benefit tied to the transaction itself. Sharing the expense with the buyer is the best practice, keeping both parties invested in the retention of the seller’s employees.
Finally, the seller should work with the buyer to compare employee benefit packages and understand how the buyer will make up for any deficiencies in benefits. For example, FOCUS recently closed a transaction in which the buyer’s employee health benefits were going to cause the acquired company’s employees to have to spend more money in healthcare premiums every month. To avoid this negative impact, the buyer adjusted everyone’s pay to make up the difference, so the company’s employees were not economically harmed as a result of the transaction.
In summary, when a seller is concerned about safeguarding their employees during and after an M&A transaction, there is nothing more important than properly vetting buyers and working with them. The tactics described above are more effective than simply trusting that a mission statement reflects the true culture of the buyer. If you as a seller want to know what your employees will experience post-closing, a thorough evaluation of the acquiring company speaks volumes.
