Address Employee Issues Before Selling
Labor issues are affecting the M&A market. For some business owners, it means decreased value because they can’t find people to maintain operations or replace the owner after a sale.
But labor shortages are also sending buyers to market. When they can’t hire the talent they need to grow organically, they look to expand through acquisition instead – buying companies with fully staffed teams.
Either way, buyers are scrutinizing employee issues. If you’re thinking of selling, shoring up your team can make your company more attractive, and valuable to buyers.
Stay bonuses. We’re working with one business owner who plans to incentivize his key management team with roughly $300,000 in stay bonuses after the sale. These dollars will be doled out in intervals in the months after the transition, provided managers stay with the organization.
Buyers like seller-sponsored stay bonuses because it shows the seller has a vested interest in their success. Stay bonuses significantly reduce the risk that essential talent will leave in the first months or year(s) after a sale. In an industry where talent can easily jump from one job to another, stay bonuses could make the difference in getting your business sold.
Non-competes. No buyer wants to sit down after a closing only to find out a key employee is off to work for the competition. A seller can help ward off that risk by securing non-competes from essential employees before a sale.
Work with legal counsel to develop non-competes that will be deemed enforceable by the courts, i.e., not too restrictive. You also want to ensure that non-competes are assignable to the new owner, meaning they’ll transition with the purchase.
Finally, it’s best to secure non-competes before going to market. Otherwise, if an employee finds out you’re trying to sell, they may take advantage and negotiate for a bonus or higher salary before signing.
Prep for due diligence. Buyers will conduct significant due diligence prior to closing. In terms of HR issues, they’ll be looking to ensure your team has all necessary certifications and legal authorizations to work. If your I9 forms are incomplete, for example, clean those up before going to market.
Update employee handbooks, job descriptions, and employment agreements. And verify that independent contractor and exempt / non-exempt classifications are appropriate.
Recruit and retain. Finally, now is the time to double down on recruitment and retention, particularly if you have a large employee base nearing retirement. Talent issues are a beast right now, but don’t plan on deferring the problem to the new owner. A thoughtful talent development program could yield significant return in business value when it comes time to sell.
By Scott Bushkie
Scott Bushkie Managing Partner, Founder, CBI, M&AMI, Fellow of the IBBA.
With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers. Follow DealCoach on Linkedin