Poor People Issues Reduce The Valuation

Selling the business is an exciting time for an owner. Generally it’s been on the mind for a year or more. A potential buyer has been found, they seem keen and due diligence is about to begin. Plans to use the profits for a leisurely retirement or investment into the next “big thing” have been thought of and have become almost a reality. The future looks bright!

Whenever I’ve been asked to advise a CEO that’s considering a merger and acquisition of a business I always ask whether retaining parts of the existing team is vital to success. The reason I ask is because how the vendor behaves in the lead up to a sale can result in fifty percent of the workforce leaving within twelve months and the other fifty percent over the following two years. “If that would reduce the value of the purchase, consider negotiating down the price you are asked to pay” is my advice.

Often the reason for the surprising statistics is that whilst the owner is living in the future the remaining workforce is firmly in a past time frame. Secure in a job they know and like. So when told that the business is to be sold a mass on insecurities rise to the surface and result in some critical talent considering their future. CV’s will be prepared and recruitment companies contacted.

Losing key talent is not the only problem. Poor communication is often an issue. Informing the workforce too early allows competitors and head-hunters to circle around like vultures for rich pickings. Informing the workforce too late can cause disruption because on hearing that the business is being sold employee engagement tends to fall and with it productivity.

There is an increasing understanding amongst those advising the purchaser that “people issues” play a significant role in a successful M&A. Successful purchasers are encouraged to look at and address people issues early on during the due diligence phase. Difficult cultural fit, potential loss of key employees, past turnover, increases in turnover, poor employee communication, poor employee relations, reduced worker engagement, severance costs and potential constructive dismissal exposure can reduce the eventual price offered for the business.

Having a robust people plan that includes communication strategies, people issues and talent retention is part of maximising the value when preparing your business for sale.

Stephen Harvard Davis is the Managing Partner of Assimilating-Talent that specialises in integrating senior talent into a business and working with restructured teams to make them more profitable faster.

For more information please contact us on info@assimilating-talent.com

Stephen Harvard Davis
Managing Partner 
Assimilating-Talent

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