Employee Issues Involved With a Business Transfer
 

For most businesses, employees are the key asset being acquired, and the majority of buyers retain all or the vast majority of the employees.  Of course, the employees will need to demonstrate their value to the buyer.  When we advise sellers and buyers, we suggest that the transition to new ownership be as minimally disruptive as possible to the employees.  By that, we mean not changing pay scales, benefit packages, or vacation policies.  In fact, one of the best ways for the buyer to ensure employee retention is to increase the benefits package.  For example, we sold a business with about 50 employees to a larger firm in the same industry.  The larger firm had a more comprehensive health insurance program and the employees of the acquired firm were happy with the change in management, due to the enhanced benefit package.

In many cases the seller does not disclose to the employees that the business is being sold until a transaction is fully negotiated and funding has been approved.  The rationale is that there is no need for disclosure until the seller has a transaction that will close and knows the intentions of the buyer.  At that time, shortly before closing, there is typically an employee meeting where the seller announces the sale to the employees, explains the intentions of the buyer, and often introduces the buyer to the employees.

It is not uncommon for the seller to identify one or more key employees that are essential to the continuing operation of the business and would want to assure a buyer that those employees will remain after the sale.  This can be accomplished with a "stay bonus", which provides that the key employees will receive a specified amount from the seller if they remain with the new owner for a specified period of time (usually a year).  The stay bonus is an excellent way to increase buyer confidence and to reward key employees. 

Identifying employee issues at the beginning of the sale process helps to assure a better transaction and a smoother transition of ownership.

(originally published in July 2014 eNewsletter)