Mergers & Acquisitions II: Maximizing Value

Employees play a big part in the success and value of your M&A transaction.

Take it from an employment lawyer – anticipating human resources issues and planning accordingly will ensure that the transaction is a success and achieves all of its potential value.

In my last post, I detailed the five deadly sins of mergers and acquisitions (M&As). This post reviews some of the lessons learned over my career as an employment and business lawyer.

Avoid the M&A Rumour Mill 

Rumours of a pending sale, merger, or acquisition are worrisome and distracting to employees. This is no trifling thing: employee upset affects your bottom line.
– Productivity and client relations suffer;
– Benefit costs skyrocket, either with increased sick time or benefit claims;
– Distracted or unhappy employees have more accidents;
– Key employees may seek other opportunities, which results in a loss of know-how and proprietary information. 

Solution: Go to great lengths to keep M&A information confidential, and keep short the time from early discussions to close of deal. 

Treat Employees Fairly

Treating laid-off employees fairly will affect the commitment and productivity of retained employees. Consider what, if any, steps you can take to minimize the chance that employees will become disaffected and/or voluntarily leave as a result of the new structure. Just because an employee will have a job in the new organization does not mean that she will be an engaged employee. Thus, even if layoffs are inevitable, treat the terminated employees with respect and be fair with compensation packages. Besides avoiding wrongful dismissal claims, you will gain a valuable investment of loyalty and engagement from retained employees.

Working Notice Isn’t a Bargain

If you are considering providing ”working notice” of termination for employees to minimize the cost of lump sum severance payments, be aware of the hidden costs. Working notice can result in increased benefit claims and costs, a decline in client and customer service, and the risk that those employees will not complete critical or transition tasks prior to their departure. Offering a performance-based closing bonus or increased severance offer (payable upon departure) is one way to manage those risks.

Extending Working Notice is Costly

If for what ever reason you require the services of terminated employees longer than initially planned, do not expect employees to be happy about an extension of their working notice. Employees usually resent this extension and, if the final severance packages have not yet been settled, you can expect the negotiations to become more difficult. If you anticipate a delay in the layoff, it is better to offer  more generous severance packages up front, with the flexibility you may need, in exchange for employees’ early sign-off. 

Owners Don’t Necessarily Make the Best Employees   

Business owners who sell their business but stay on as an employee are usually not prepared for the difficulties associated with the change in control and corporate culture. Ensure that new employment agreements with these vendors have good severance provisions, and minimize links to payment of the sale proceeds with the length of employment (post-closing) of the vendor.

Develop a Strategy to Keep Key Employees

If the retention of key employees is a condition of the acquisition sale, consider what you need to do to secure their employment. Key employees’ leverage increases as costs to negotiate and implement the sale are incurred, and as closing nears. Consider the relative risks of communicating the merger or acquisition early on (that may not close) in order to secure key employees, versus the costs of not securing key employees early. The perspectives of a vendor and purchaser are often different in this situation.

Know the Culture of the Acquired Business

It is important to understand the culture of an acquired business when imposing new employment contracts. Even when a purchaser agrees to offer the same employment terms as employees previously had, the form of employment contract (i.e., formality, tone, or one-sided language) should be similar to what the employees are used to – if not, your new relationship with acquired employees will get off to a bad start. That will then affect the employees’ willingness to buy into operational changes, or result in loss of productivity or other costs associated with attrition.

Planning and completing an M&A often takes months. Significant additional or hidden costs will be incurred and/or value lost without early consideration of human resources issues. Getting an experienced human resources executive or employment lawyer involved at the time an M&A is being considered will greatly enhance the overall success and value achieved from the transaction. 


This blog is written by Nicole Byres of Clark Wilson LLP and made available by BCBusiness to provide general information on employment law, and is not a substitute for competent legal advice from a lawyer licensed to practice in your jurisdiction. Neither the reading of this blog nor the sending of unsolicited comments or emails creates a lawyer-client relationship with the writer or Clark Wilson LLP.