While there are many issues to prepare for in any deal, both sellers and buyers should be cognizant of certain employee-specific issues as the transaction unfolds.
In order for an acquisition to be successful, key employees must often be retained, reassured and motivated post-closing to keep the business moving. One method a company may implement is a “golden handcuff,” which is a collection of financial incentives that are intended to encourage employees to remain with a company. These plans often help companies hold onto employees with whom they’ve invested.
From a dealmaking perspective, both sides of the transaction should be mindful of whether any employees have stock options or profits interests. These benefits often vest over time; however, it is common for them to automatically vest and become operative upon a sale or change in control.
Such employee agreements must be analyzed to determine how the rights are triggered, how the shares are valued and other such terms to determine whether those agreements have an impact on the proper purchase price.
The value of the transaction could also be affected by how well the company protected itself against departing employees. Effective employment covenants such as non-competition, non-solicitation and non-disclosure requirements can help preserve the value of the company and, in some instances, help retain the employee.
If, however, an employee’s tenure will be terminated as part of the acquisition, buyers will want to know whether the employee has already agreed — perhaps in exchange for receiving a payout of stock rights — to sign a release agreement that waives any potential claims against the business. Further, if the employee has been paid a retention or other similar bonus, but has not fully performed under the agreement governing the payment, the company will want to analyze whether it makes sense to attempt recovery of some or all of the payment.
Given that employees are often a central asset of a target business, buyers and sellers should be ever-mindful of the legal landscape affecting those employees as they evaluate any potential deal.