Why Staff are Key to a Successful Acquisition

More often than not, when you buy an existing business, it has staff members. While it’s easy to see this aspect of acquiring a business as an inconvenience, existing staff can actually be the most valuable part of the transaction.

This is not to say that existing staff can’t cause problems if buyers do not handle the transferral period in the right way. There is scope for employees to throw a spanner in the works of your otherwise successful purchase, so it’s vital that you tread carefully and treat staff with the respect they deserve in order to ensure the transaction goes as smoothly as possible.

So, where do you start when sizing up a potential acquisition that has existing staff members? Firstly, you must ensure you understand the business’s culture.

Understanding the Culture

Large corporations on the acquisition trail are increasingly investing time and money into establishing cultural synergies between themselves and potential targets. The importance of aligning business cultures following a purchase is vital to the success of a deal, regardless of its size or value.

“The culture of a business, with regards to its staff, is an intangible factor that will need some careful consideration.”

Employee expectations

Buyers need to establish whether the company in question offers training opportunities to its staff, what their expectations of career development are and, in turn, what is expected of them in terms of career developments.

With regards to staff expectations, opportunities do not always align with ambitions, and staff may be frustrated that they have not been offered career development opportunities by their existing managers. Company hierarchy can be to blame, or overall structure and culture can also have an impact. Understanding all of this will help you, as a buyer, to ensure that you can meet staff expectations from the outset.

Indeed, showing staff that you understand their career goals and that you will try to enable them to meet these goals could increase the chances of a business flourishing post-acquisition.

Staff can help or hinder your purchase

If a buyer manages the transferral of staff well during and following an acquisition, they will often prove to be the most valuable resource to the new owner.
Find out how the staff work

Understanding how the staff work together and what their day-to-day processes are can help buyers gain a fundamental view of the culture of the business. Speaking to the staff about their jobs at length and having them write out details of their tasks is essential.

Without this level of knowledge of the daily ins and outs of the business, the new owner is at an immediate disadvantage and the business is likely to struggle, at least initially, to perform as well as it did before the change in ownership.

Establishing the factors that motivate staff is also an important part of the process of learning about how they work. Is the business run primarily to make a profit, or are there other factors that are just as or more important? For example, if you are buying a guest house or hotel from a seller who has been operating the premises as a family business for decades, the staff will often be motivated by loyalty to the former owner, and often by customer service or even service to the community.

These motivators must not be overlooked when transferral of ownership takes place. If a new owner goes in with all guns blazing, pushing for profits and sales targets, the existing staff and their years of experience and local knowledge will be straight out the door with their worst fears realised.

And that brings us to the next point…
What are the staff afraid of?

Staff who are working for a business that is being sold will naturally be very uncertain about their future. They may be uncertain as to whether they will still have a job following the transaction and they may be fearful about how their role might change.

These fears and uncertainties need to be taken into account by the new owner and he or she must do their very best to be as open as possible about any changes that are taking place in order to allay these fears.

Having open lines of communication during the acquisition process and after the deal is done is essential for keeping staff on-side. Showing a willingness to listen and act on staff expectations, uncertainties and concerns will win a new owner a huge amount of loyalty from the staff.

Retaining staff during a transferral of ownership process.

Uncertain, fearful staff are likely to start looking around for new opportunities as soon as they get so much as a whiff that the company they work for is being sold. Buyers need to think about how to communicate with staff to reassure them that it’s worth their while sticking around.

Incentives and rewards for those who stay a certain amount of time following a change in ownership can work as a way to retain staff long enough for each party to find out if they are a good fit. Hand in hand with this comes the communication aspect again. If staff are listened to with regards to their aspirations, and assurances are given that these aspirations will be taken seriously, some employees will be more than happy to stay put and see what opportunities come their way following the transaction.

Getting it right

Across all sectors, there has been no shortage of larger businesses absorbing smaller competitors over the past year and transitioning staff into the growing brand. Avery Healthcare, for example, has experienced huge growth whilst maintaining strong levels of quality and staff morale.

Sharon Winfield, the Chief Operating Officer at Avery, was tasked with transferring a number of individual care homes into the Avery brand after the chain expanded through acquisition. Sharon has been named a Leader in Care in the Care Home Professional Awards, which stated: “With a key focus on resident care and life experience, Sharon has driven the implementation of internal quality frameworks within this fast-growing group to enhance well-being for both the residents and staff in the homes.”

Getting it wrong

Dutch drilling firm Borr Drilling recently purchased Paragon Offshore and swiftly set about offering redundancy to around 70 staff members, most of whom worked at offshore oil rigs. The involved employees perceived the package to be unfair and Dutch union Nautilus International, together with UK unions RMT and Unite, became involved to represent the staff.

Now, Borr Drilling has agreed to reinstate a number of the staff who were made redundant, but we don’t imagine there will be any loyalty left among these staff or indeed among any staff not affected by the redundancies.

Legal responsibilities

Taking on a business with existing staff doesn’t come without its legal obligations. The buyer’s lawyers will be familiar with TUPE ("Transfer of Undertakings (Protection of Employment) Regulations 2006") legislation in the UK. The main thrust of this is to ensure that employees of the company being bought, who automatically become employees of the buyer upon transaction date, enjoy the same rights and terms and conditions of employment following the acquisition. This includes any continuous service they may have built up.

Staff contracts

The buyer must ensure that they understand the employment contracts for each member of staff. For example, some may be on zero-hours contracts, while others could be employees or self-employed. Their rights will differ depending on these contracts and the new management must be aware of their responsibilities to each of them, bearing in mind TUPE as outlined above.

Changes in terms and conditions

If any changes to terms and conditions of employment are planned, the new owner must obtain agreement from the staff in advance. Bearing in mind both TUPE and staff motivation, it is advisable that any changes in terms and conditions are more favourable to the staff member than previously.

Timing

Timing is crucial to these types of transactions. Buyers shouldn’t start conversations with staff until the end of the due diligence period for obvious reasons. They should then notify staff if any redundancies are to take place and these should be made before they start as manager. For staff morale, it’s much better to have any difficult decisions done and dusted before a new manager’s first day.

Conclusion

Staff really are among the most valuable assets you can acquire when taking over an existing business, and they should be treated as such. Transitioning the existing staff to new ownership and the new team members, terms, business practices and culture that come with this, can be a challenge. However, if you do a good job you will reap the benefits for years after the deal is done.

Also read:
How ego and pride can ruin a good deal...and a company

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