Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

January 6, 2014

Where will the employees be after the business has sold?

By Joseph Eneldas

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One question we are consistently confronted with, is the issue of how well current employees will transition in a business sale. “Surprisingly,” says Achim Neumann President, A Neumann & Associates, New Jersey, “the question is of great concern to both sides – the buyer and the seller – albeit from different perspectives”.

The buyer is typically concerned with losing key people – a very valid consideration. Ultimately, after closing a deal, the buyer has paid for the “good will” of the company, which includes the work performance of employees. There is a tendency on the buy side to attempt to secure employees, or at least key ones, by way of an employment agreement. Whereas this sounds tempting on the surface, buyers seldom consider the drawbacks. For example, if a particular employee has been considering a move to a different company, an employment agreement will undoubtedly tie the employee to the current company.  However, in all likelihood, this employee will not perform at peak performance going forward. As a matter of fact, such employee might very well have to be terminated fairly soon by the new owner, at which point the employer (or new owner) will be facing the possibility of aborting the employment agreement while still remaining responsible  for the remainder of the agreement period.

Sellers view employee retention from a different perspectives, namely, as a token of their appreciation for the many years worked. “Usually, sellers do not want to see employees terminated after the sale of the company” says Michael Gersten, Managing Director, Northern NJ / Southern NY State. “So they seek all kind of assurances that the employees will be kept on.” Of course, such assurances are not enforceable once a new owner has taken possession of the company.

Finally, prior to consummating the sale, there is the question of how to obtain employment agreements without breaching confidentiality. Typically, employees have worked for an extended period of time under the past owner, without any sort of agreement. For the past owner to approach the employees prior to closing on the business transfer with the request to put such agreement into place, will – at best – immediately raise questions on the employee side. Worse, it could lead to a renegotiation of the existing terms, setting completely aside, that such negotiations would be lead by the selling party whereas the buying party has to execute the agreement.

There are no specific statistics for employee retention in small to mid-sized business transfers, however, studies done several years back within our firm’s organization point to a very small percentage of employees actually leaving after a transaction.  Viewed from a different perspective, all employees have personal financial obligations to be met in their lives and undermining such obligations by exiting an existing employment situation, does not make a lot of sense. Moreover, a new owner might very well bring in new perspective and provide a pathway for company growth and employee growth – a very welcome change from the previous (tired) owner!

“Nevertheless, our firm has incorporated various forms of employee retention programs into deal structures over the years, “ says Frank Arcoleo, Managing Director, Central Pennsylvania, “ and it has been a thorough success for both parties.”

We encourage both parties to consider a private consultation with our firm to strategically explore different alternatives to meet their objectives in human resource management.

 


About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage firm with 30 years of experience in New Jersey, New York, Pennsylvania, Delaware and Maryland that assists business owners and buyers with the business transfer process in a completely confidential manner. The company is affiliated with BBN, with 450 offices and access to a national network of qualified buyers and sellers. For more information, please contact A Neumann & Associates at 732-872-6777.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

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Client Testimonials

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs

“A Neumann & Associates is the only business broker I would use or consult with. They have assisted with 3 business sales over the past 15 years with me. They are honest and sincere and have always performed better than my expectations. They are the only one i would use for the sales of my businesses.”

James Belanger, Business Owner

“I wanted to take a second to commend the exemplary customer service from both you [Karin Neumann] and Mr. Valentino. It’s both a rarity in the industry, and very much appreciated.”

Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer

“Purchasing a business through this firm was a pleasure. Gary was very professional and transparent throughout the entire process. I look forward to working with A Neumann & Associates in the future.”

William Klemens, Buyer
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Contact A Neumann & Associates, LLC

If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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