Buying a business while retaining staff

When you buy an existing business, it typically has employees. This aspect of acquiring a business may seem awkward, but in reality the company's existing staff may be the most valuable part of the deal.

Buying a business while retaining staff

This does not mean that the existing workforce cannot cause problems if buyers do not manage the transition period. Employees can get in the way of a successful purchase, so it's important to tread carefully and treat them with respect to ensure the transaction goes smoothly.

So where do you start evaluating a potential acquisition that already has staff? First and foremost, you need to make sure you understand the company's culture.

Understanding culture

Large companies pursuing acquisitions are increasingly investing time and money in establishing cultural synergies between themselves and potential targets. The importance of aligning business cultures after a purchase, regardless of size or value, is key to the success of the transaction.

«The culture of the business and its employees, — This is an intangible factor that requires careful study, since it will affect the success of the business after the purchase.

Employee Expectations

Buyers need to find out whether the company offers training opportunities for its staff, what are their career expectations, and what is expected of them in terms of career development?

As for the expectations of the company's personnel, opportunities do not always coincide with ambitions. Employees may be disappointed that their previous managers did not offer them career opportunities. The company hierarchy, as well as the overall structure and culture, may be to blame. Understanding all of this will help you, as the buyer, ensure that you can meet the team's expectations from the very beginning.

Showing your company's employees that you understand their career goals and are committed to helping them achieve them will increase the chances that the business will prosper after the acquisition.

The staff can help or hinder your purchase

If the buyer manages the transition of personnel correctly during and after the acquisition, they often turn out to be the new owner's most valuable resource.

Find out how the staff works

Understanding how a company's employees work together and what their daily processes are like can help buyers gain fundamental insight into a business's culture. It is very important to talk to employees in detail about their work and ask them to describe their tasks in detail. Without this level of knowledge of the day-to-day operations of the company and its staff, the new owner will be at a disadvantage.

Understanding the factors that motivate employees is also an important part of the process of studying their work. Is the business run for profit, or are there other factors that are equally or more important? For example, if you buy a hotel from a seller who has run it as a family business for decades, the staff will often be motivated by loyalty to the former owner.

These motives should not be overlooked when transferring ownership. If a new owner rushes in with a profit and sales target from day one, the existing staff with their years of experience and local knowledge will be out the door, their worst fears realized.

And this brings us to the next question...

What are employees afraid of?

Employees working in a business that is being sold will naturally be very uncertain about their future. They may not know whether they will still have a job after the deal and fear how their role will change.

These fears and uncertainties must be taken into account by the new owner. And he should do his best to be as open as possible about any changes that occur to allay those fears.

Open lines of communication during the acquisition process and after the deal is completed are essential to keeping company personnel on board with the new owner. Demonstrating a willingness to listen to the expectations, uncertainties and concerns of employees and take action accordingly will allow the new owner to gain enormous loyalty from the staff.

Staff retention during the ownership transfer process

Insecure and fearful employees are likely to start looking for new opportunities as soon as they hear even the slightest rumor about the sale of the business. It is advisable for buyers to consider how to communicate with such people in order to convince them that they are worth staying with the company.

Incentives and rewards for those who stay with a company for a certain amount of time after a change in ownership can be a way to retain staff long enough for each party to see if they are a good fit for each other. Related to this is the aspect of communication. If employees are listened to about their aspirations and given assurances that those aspirations will be taken seriously, some employees will be more than happy to stay put and see what opportunities open up for them after the deal.

Legal responsibilities

Acquiring a business with existing staff does not come without legal obligations. The buyer's lawyers should familiarize themselves with the labor laws of the country where the business is being purchased (if we are talking about a foreign company). The idea is to ensure that employees of the acquired company, who automatically become employees of the buyer on the date of the transaction, have the same rights and terms of employment after the acquisition.

Contracts with personnel

The buyer must ensure that he understands the employment agreements with each employee. For example, some may work on zero-hours contracts, while others may be employees or self-employed. Their rights will vary depending on these contracts, and new management must be aware of their responsibilities in relation to each of them, taking into account labor laws.

Changes in terms and conditions

If any changes are planned to the terms of employment, the new owner must obtain the consent of the employees in advance. Taking into account labor legislation and staff motivation, it is desirable that any changes in conditions be more favorable for the employee than before.

Deadlines

Timing is critical for this type of transaction. For obvious reasons, the buyer should not begin conversations with staff until the end of the due diligence period. He must then notify staff of the upcoming layoffs, and this must be done before he begins work as a manager. It is much better for staff morale if all difficult decisions are made before the new owner's first day on the job.

Staff are one of the most valuable assets you can acquire when acquiring an existing business, and should be treated as such. Transitioning existing employees to new ownership and new team members and the environment, business practices and culture that comes with it can be challenging. However, if you do this well, you will be confident in having a successful team that helps and helps your business thrive.

3/12/24
Julia Taraday, REAB Consortium
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