You have heard the old adage, “An Organization is Only as Good as its People.” That has never been truer with an organization than with a professional services firm. This statement is so true that the opportunity to gain skilled talent is one of the top reasons for a merger or acquisition in today’s market. The great irony in this statement is that while a successful deal creates an opportunity to gain talent across the organization quickly, mismanagement of talent through a transaction could be detrimental to the most straightforward transaction.
A survey by the Society for Human Resource Management (SHRM) found that fewer than half of survey respondents reported they were successful at retaining employees through a transaction. SHRM further notes that their previous studies and surveys have shown executives preparing to acquire a company focus more on the other company’s financials than on how to blend the values and cultures of the two organizations.
While focusing on a company’s financials is important, you’ll also want a strategy in place for employee retention to keep employees from leaving if one of your acquisition goals is to quickly gain (or retain) skilled staff.
Why Culture Matters When Acquiring a Company and Retaining Talent
When should you start thinking about talent retention during a transaction? Day 1 Step 1: When looking at the merger and acquisition process, you can get it right from the beginning by identifying the correct buyers and sellers.
Whether you are the buyer or seller, you must have a clear understanding of what your company culture and values are in order to seek a transactional partner that aligns with your organization. As you think about a cultural match, does it have to be perfect? Cultural alignment is not necessary for all aspects of your company culture, but there can’t be a cultural mismatch in your non-negotiable values.
How to Identify Key Talent During an Ownership Transition
Once you have a good cultural match identified and the transaction has moved into the Due Diligence phase, it is time to identify the key talent. Whether you are the buyer or the seller, accurately identifying the talent is an important step in the process. The seller is responsible for accurately representing the team, their roles, and their importance in the organization. In turn, the buyer is responsible for being open and transparent with the seller about where the team fits into the larger picture.
During the due diligence stage of an ownership transition, the seller will need answers to the following questions:
- Does the buyer plan to retain all talent?
- Does the buyer plan to eliminate redundant roles such as C-suite, HR, IT, etc. positions?
- If so, how will staffing cuts be determined?
Answers to these key questions need to be transparently communicated by the buyer to the seller during the due diligence process. The seller is typically identifying talent through a top-down approach, where senior leadership informs the buyer of the key talent and their importance in the organization.
If you’re the seller, you’ll want to steer clear of the following challenges to give the buyer more accurate information and make talent retention as smooth as possible:
How to Keep Employees from Leaving After Identifying Them
Now that the talent has been identified, how do we retain them? The path to employee retention is paved with….dollar bills? Not at all! Financial incentives are often the first lever companies consider when thinking about keeping existing talent secure. This approach can be expensive on top of the purchase price, and less effective for long-term retention.
Due to the potential expense and lack of long-term success, the financial incentive strategy is best suited for addressing short-term needs. For example, you might use this approach when you need an IT Manager to stay on for six months to assist with the transition to the new IT platform.
Since we know financial incentives are not the most effective, let’s try this again. Is the path to retention paved with clear communication and expectations?
In fact, key employees identified during the due diligence process are oftentimes aware of the merger or acquisition ahead of the rest of the employees. Sometimes they’re even identified in the Asset Purchase Agreement/Stock Purchase Agreement (APA/SPA) as “key” to the M&A deal. Key employees could be offered stock in the acquiring company as a method to keep them from leaving. A buyer should also always clearly identify the importance of the talent’s role, and communicate that importance to the talent during the business ownership transition.
Clear Communication: Tips for the Seller and Acquirer Sides
When communicating to the rest of the organization, each “side” of the transaction has clear communication guides they need to establish and follow as a united team.
On the seller side, leadership needs to have a well-thought-out communication plan ready to deliver during the internal communication of the transaction. This plan should quickly address some of the key questions employees are thinking immediately after hearing the words “we are merging with….”. The number one question employees have after hearing these words is often, “Will I still have a job?” It is critical to address this reasonable concern immediately with as much information as you can share in the group setting.
Other key questions to quickly address with the communication plan include:
- Why is this transaction occurring?
- When is it occurring?
- What is the new company like?
After the initial communication to the seller-side employees is complete, it is advised the acquirer’s leadership team create an opportunity to speak to the seller’s team, both as a group and one-on-one when needed or requested by the seller’s employees. Some key questions to address in this initial communication include:
- Why are you excited about this transaction?
- What was it about the seller company that was so attractive to you?
- Where do we go from here from the employee retainment perspective?
- Will we have jobs?
- What will I be paid?
- Will I lose benefits? (health, paid time off, flexibility, seniority, etc.)
When thinking about a merger or acquisition and whether you are on the buyer or seller side of the deal, talent retention can quickly derail a deal and cause a transaction to be deemed unsuccessful in the eyes of employees. Having a clear plan and proactive strategy from the beginning on how to keep employees from leaving helps structure a deal that is successful for both the company and its staff members.
Choose Thinc Strategy for Merger and Acquisition Advisory Services
Now that you know more about how to retain employees during a business ownership transition it’s time to turn to Thinc Strategy for additional assistance. At Thinc Strategy, we’ve helped many companies reach their acquisition goals and retain top talent during an acquisition. As an M&A advisory firm, we’re here to help you through every step of the expansion through the acquisition process.
If you’re currently involved in or planning an acquisition, learn more about our business ownership transition services. You can also contact us to speak with a certified merger and acquisition advisor!