What Happens to Your Employees When You Sell Your Business?

Most small business owners realize the personal and professional loyalty they have to their employees and more specifically, their management. After all, the success of your business clearly depends on the quality of these key individuals. They’ve been with you through both the bad times and the good times, so their destiny is probably of importance to you.

You have now decided to put your business up for sale, but one of your key questions is “What is going to happen to my employees after the sale?” Will the new owner keep them on, or will they be let go en masse into the rank of the unemployed?

For small or medium-sized businesses, the issue will not be necessarily as critical as you think. Small companies aren’t generally bloated with an overstaffed bureaucracy like the big ones. Your company is likely to be very functional with a number of your key employees wearing many hats and performing a variety of tasks that made your company a success in the first place. A smart buyer is likely going to realize that the ongoing success and profitability of the business is highly dependent on your employees.

Your employees are intimate with customers and suppliers and they’ve built up solid relationships that are vital to the ongoing success of the company. Additionally, they know the industry, so they know the strengths and weaknesses of your competitors and are probably quite experienced in all aspects of your particular business niche.

Contrary to the common belief that all acquirers are “slash-and-burn” corporate raiders, the fact is that many buyers don’t want to consider purchasing a company unless there is some level of assurance that the employees are staying with the company. So while you should be concerned about your employees’ well-being, you should also ensure rumors about an acquisition don’t run rampant and cause a mass exodus from your company. That’s the quickest way to scare off an acquisition.

If you tell your top management or if your employees find out about a pending acquisition, it is important that you convey to them the acquirer’s intention for the operations after the purchase and the synergies that exist with the acquisition. In addition, it may be important to reassure your employees that because the acquirer is a larger company, their job may be even more secure and the buyer may offer a better benefits package than you were able to afford. Additionally, there may also be additional benefits such as a bonus or salary increase to entice the employees to stay.

It is possible that a acquirer may view finance and administrative employees as redundant because the buyer’s company would have these same personnel and would not need to duplicate unnecessary staff. However, more commonly, we see the opposite happen especially when the buyer is a public company. With public companies, financial reporting and HR become much more important and a public company buyer may likely add more people to these functions.  In addition, as the company grows, those finance and administrative people are likely to have an increased role.

While it is normal to protect your employees, it is not a wise approach to dictate to the seller that the retention of all employees is part of the deal. You should evaluate the purchase from your acquirer’s prospective. The acquirer has probably not met most of your employees, nor does it know enough about each employee’s exact role to make any decision about who stays and who goes. As a business owner who is about to sell, the best option is to evaluate which acquirer seems the most trustworthy and has conveyed to you a general plan of operations post-close that closely resembles your expectations. If an acquirer intends to operate your business in a manner similar to your current operations, it is very likely that you and your employees will continue to work for the company after close. Remember, you hired these employees and invested a significant amount of energy and time in training them. Why wouldn’t an acquirer want to utilize what they are already paying for?