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Managing workflow is critical throughout the integration process too. One of the most common reasons issues arise post integration is overloading the very people you’re trying to retain. Enhanced employment terms help. Equity incentive schemes and completion bonus structures are further options but all parties to a transaction will need to consider tax efficiency as part of their assessment of any incentive proposal. All buyers will look at the key people in any proposed target closely, ranging from key executives and founders to technical talent in knowledge or technology businesses. The most common mechanism used, where senior management are also sellers in the M&A deal is the earn-out.
For the next level down, depending on the situation, improved remuneration packages for middle management, which could include retention bonuses, can help. After all, if the seller managers have exited the business, this opens up opportunities for the next layer of management to progress their careers unhindered. Good communication is vital throughout.
While golden handcuff arrangements have their place in any M&A leader’s toolkit, reducing short-term disruption and providing stability during transition, they are also limited insofar as they are retentive rather than motivational, rewarding tenure rather than value creation.
In many private equity-backed businesses, and increasingly in trade sales, equity and equity-like programmes with much broader participation are being used. Managing all of this is a vital part of the due diligence process.
The due diligence process is as much about understanding, in a joint capacity, what is the future business plan, with the actual people being heavily involved. This isn’t about accountants looking at numbers, it’s about making sure that the management team on both sides of the transaction fully understand what that business plan looks like, and believes in it, and has sense checked it with all of the volatility of the markets that is ongoing. That means that, if there are synergies and cost savings envisaged by the buyer, that they are realistic and can be delivered on. These are the things that differentiate between a transaction that is successful and one that isn’t – because the integration planning hasn’t been done effectively.