Due Diligence – Part 5 – The human touch

“It’s not the tools you have faith in – tools are just tools – they work, or they don’t work. It’s the people you have faith in or not.”  Steve Jobs

During due diligence your buyer, and their advisers, will be validating the information you and your advisers have provided earlier on in the process. This will include information about your employees, particularly your key staff.

Of course, most businesses don’t employ geniuses who can disrupt their industries, but the human element is critical to the success or failure of a merger or acquisition.

Sometimes, talent alone can be enough to attract an acquirer but in any event a loyal, dedicated workforce that is committed to the company’s success, regardless of ownership change, is a valuable asset to a prospective buyer and will be reflected in their valuation.

However, be aware that if you have a family-run businesses where many of the key roles are held by family members this can be a risk for a buyer as, in practice, it is often very difficult for these people to accept the new vision for the company that comes with a new owner.

Even before you actually put the business on the market it’s important to be clear about who your key employees are;  it may not be a member of the senior team so look in less obvious places for people whose skills or social networks may be critical to the company’s business objectives. It could be that even if their career potential isn’t particularly exceptional, their knowledge, technical expertise or business relationships make their retention critical to the business and therefore to an acquirer.

Your buyer will want to retain these people so ask yourself “If this person left, how would the business be affected?” and “What can be done to ensure that the business retains that person”. 

If you protect this valuable human asset and address the issue of staff retention ahead of due diligence the risk of price chipping or even transaction failure will reduce.

Many business owners feel an obligation to a loyal workforce and to the culture they have helped shape. There are many incentive schemes available and, if you want to explore this option, it’s important to get specialist legal advice.

To find out more about this and other “hidden” assets that increase business value join us at an Evolution CBS Masterclass.

 

 

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