Managing and Motivating Employees During a Divestiture
A divestiture presents unusual challenges to a seller---How do you run the business and sell it at the same time?
A divestiture also places employees in an uncertain and in an often anxiety-producing environment---Will I have a job with the new owner?
It is critical for the seller to manage the selling process in such a way as to make sure that it’s key employees stay focused on the day-to-day running of the business. It is also critical for the seller to make sure that those of its employees who are assisting in the sale of the business are motivated to get the highest price possible for the seller.
In the article that follows, we will explore this subject in greater detail.
What employees will be involved in the selling process?
The first step for a seller in a divestiture is to decide what employees will be involved in the selling process, in what capacity and at what stage in the process. Even when a seller retains an investment banker or other outside intermediary to serve as advisor in a divestiture, key employees of the business will be needed to assist in the effort. Employees with responsibilities in financial/accounting matters, sales, purchasing, production and R&D are often needed to assist when a business is larger. In smaller deals, multiple functions may be covered by a single employee and/or the owner (where the business is closely-held or family-owned). In almost all cases, input and participation of employees is important not only in compiling relevant information on the business, but also in due diligence, when potential buyers will want to have face-to-face meetings with key employees of the business. Will these employees be motivated to get the best deal possible for the seller? Will they be worried about their jobs and start sending out resumes? In order to deal with these concerns, it is frequently advisable for the seller to put in place a special bonus and/or severance plan to protect against key employees leaving the company as well as to motivate them to help sell the business for the best terms possible. It is not uncommon for a seller to adopt a special severance plan to protect employees who are not hired by the buyer after the deal closes. In addition, a special bonus program can set up that gives employees involved in selling the business a one-time bonus upon closing. Such a bonus can be based on a specific formula that is tied to getting a certain target price, or it could be more subjective and discretionary, based on the employee’s performance during the selling process. There are many ways to skin the cat. The key is to align the interests of these employees with those of the seller.
Who are the key employees of the business that will not be involved in the selling process? Before looking at how to manage and motivate other key employees (i.e. key employees that are not directly involved in the process of selling the business) the seller must determine if it will try to keep the fact that is trying to sell the business confidential (recognizing always that is nearly impossible to preserve confidentiality forever) or whether it will publicly announce or otherwise make broadly known the fact that a sale is in the works.
If a divestiture is to proceed on a confidential basis, it may be that nothing needs to be done initially. But confidentiality should never be assumed to last indefinitely, so it is always advisable to have a plan to deal with key management who are not involved in the selling process on the assumption that word will get out sooner or later.
When an employee finds out that his/her company is for sale, whether this is openly disclosed by the seller or if the employee hears it through the grapevine, he/she can become very distracted. Time to update my resume? Should I be looking for a job? Will I be asked to move? Do I want to move? In order to minimize this distraction and prevent the loss of valued employees, it is often advisable for a seller to have in place some kind of special program that gives the employee some comfort and makes sure his/her focus is on the successful running of the business and doing his/her job. A business that suffers during the period when it is up for sale is a business that sells for a lower price.
As before, such programs can take the form of a severance plan that would apply if the new owner does not retain the employee, or a variety of other forms. The key here is to provide some comfort to key employees so that the day-to-day running of the business does not suffer.
All other employees.
For all other employees (i.e. employees that are not directly involved in the selling process and who are not “key”) a seller normally has less of a concern. Nevertheless, it is not uncommon for sellers to provide some type of compensation or protection for such employees out of a sense of loyalty or gratitude for their years of service to the company. This is more common when the seller is a closely-held or family-owned company, but it occurs sometimes with larger companies as well. Again, the form that such programs may take will vary depending on the specific circumstances. For example, it could be a severance type of arrangement to protect employees who are fired after the closing, or a special bonus that is paid when the deal closes regardless of whether the employee has a job with the new owner or not.
Bottom Line: A divestiture is a unique event, and sometimes the most important event in the life of a company. Employees are a critical part of the process leading up to that event. A seller considering a divestiture needs think early on how it will manage and motivate its employees during the process. |
