The importance of employees when you acquire another business

18 March 2019

Almost every business approached by an acquirer has at least several key members of staff who are not part of the ownership structure. In many instances it can turn out that these staff are actually the most valuable part of the business and make up much of its value. That does not mean that there is no scope for HR issues to arise post deal, which means it is vital that buyers tread carefully and treat new employees with empathy to ensure the post-merger integration process runs as smoothly as possible.

So, what are the key commercial considerations on the HR side when acquiring another business?  We highlight several below.

Legal responsibilities

Taking on a business with existing staff comes with a number of legal obligations. The purchaser’s lawyer should be familiar with 2006 TUPE legislation [“Transfer of Undertakings (Protection of Employment) Regulations 2006”].  The main thrust of this is to ensure that employees of the acquired business, who automatically become employees of the buyer upon deal completion, enjoy the same rights and terms and conditions of employment following the acquisition.  This includes any continuous service they may have built up.

With this in mind, any buyer must ensure that they understand the employment contracts for each member of staff, particularly the key ones. Some staff may be on zero-hours contracts, while others could actually be self-employed. Their rights will differ depending on these contracts and the new owner must become aware of their responsibilities to each of them.

If any changes to terms and conditions of employment are planned, the new owner must obtain agreement from the staff in advance. Sometimes making small changes in terms and conditions that are actually more favourable to the staff member than previous goes a long way towards improving staff motivation.

Understanding the culture

The culture of a business is set by its owners and its employees and it needs careful consideration as part of the deal process.  The importance of aligning business cultures is vital to the success of a deal, made harder by the fact that this is very much an intangible factor.  Some of the larger UK corporates are increasingly investing time and money into clearly establishing cultural synergies between themselves and potential targets as part of the due diligence process.

Employee and employer expectations

Buyers need to establish what employees’ expectations are in terms of ongoing training and longer term career development and, in turn, employees need to understand what is expected of them. Liaising closely with staff so that you understand their career goals and can show them that you will do what you can to meet these goals will increase the chances of successful post-merger integration.

Expectations will not always align and so some staff may become frustrated and eventually move on to pastures new, but taking the time to develop a clear career plan, especially with key people, will often avoid the loss of those employees whom the new owner considers most important.  Inevitably it is often those employees who end up being the most valuable resource to the new owner.

Contact us 

If you would like to discuss the above subject further, please contact Laurence Whitehead in our Corporate Finance team. Alternatively, send us an online enquiry.