SaaS Business Blog

Optimist Legal is a business law firm providing advisory and legal services to successful entrepreneurs at all stages of their businesses, from forming their companies to exiting/selling their businesses and everything in between.

I’m making this post because I’m seeing the acquisition of businesses, specifically, “boring businesses” being really popular right now.

Sites like MicroAcquire, Flippa, Shopify Exchange, etc.

What’s interesting is I have yet to hear perspectives related to buying businesses as it pertains to legal guidance. Do you find this to be true as well?

As an M&A lawyer, it’s my job to help close deals and protect the interests of my clients to ensure that their deal is the best deal possible for them.

To that end, I wanted to highlight something that I’ve noticed in my almost decade of legal practice with respect to business law and M&A.

EMPLOYEE RETENTION IS USUALLY ONE OF THE BIGGEST CHALLENGES OF ACQUIRING A BUSINESS. 

And I don’t hear people really talking about this!

One of the reasons why employee retention is one of the biggest challenges of acquiring a business is because when you buy a business, retaining the employees as part of the transaction maximizes the value you think you’re getting -> think about it, if all the core employees of a business quit after you buy it, how much costs do you have bear for that employee loss and training. How much IP and know-how of the systems and operations of your business did you just lose? This qualitative benefit is invaluable, and totally preventable.

So here are 3 ways to ensure employee retention in an M&A deal:

(1) honor prior agreements that were entered into. Don’t immediately jump into cost cutting. Develop rapport first with your employees that you’re inheriting. Implement cost cuts over a period of time.

(2) conduct interviews with key executives or personnel of the business, staff, and sample size of lower level employees/contractors to ensure that all obligations of the biz are being satisfied and that all representations with respect to the business are being fulfilled.

(3) conduct proper due diligence of agreements, and ensure that there aren’t any agreements that you’re not aware of that haven’t been implemented yet. Ensure that things that are communicated or have been communicated will actually be implemented. Supervise communication related to the transfer of the business so that you’re aware of what expectations you’ll be inheriting when you purchase the business.

If you’ve ever been a part of a company that’s being acquired or sold, you know that gossip can be rampant amongst employees of the business during the sale of the business, and often, communication can be less than transparent.

It could also be that the business is faltering and thus leading to the sale of the business, which only fuels fear and trepidation of the sale of the business. Hence why supervising communication is so important.

Were these tips helpful? What questions do you have for me that you’d like answered with respect to legal considerations of M&A transactions / sale of a business / and/or buying a business?