The decision to sell your company is never an easy one. Building your own business takes years of hard work and, most importantly, a culture and a team of people that share your values.

If you’ve worked with your management for many years, you may feel like you know what to expect from them in routine tasks. An M&A process, however, is a particular time of intense work and profound change in every organization. In such circumstances, it is good to understand what happens with your managers’ psyche and how to keep them motivated all the way to close the deal. 

A sale process can be distracting and disrupting for management

Whether you leave the company after the acquisition or stay on, the team will continue working for the company. For them, M&A is not an end of the journey but a new phase for the company. This is where issues can arise, as your interests in the sale process might not align with those of the executive team.

Whereas owners might mainly focus on obtaining the highest valuation, management’s challenges are usually different. They are affected by and might even be anxious about: acquiring company’s plans for the business, restructuring measures, changes in compensation, integration process, or other actions that might affect their career after the transaction closes.

An M&A process will also take a lot of time from management, distracting them from their day-to-day job and making it harder for them to attain their ongoing business goals. 

At the same time, insecurity around a change of ownership can also be a disrupting factor.

Getting the team on board in an M&A process

Any successful business knows that clear and consistent communication is critical, especially regarding sensitive topics like mergers and acquisitions (M&A).

In order to ensure a smooth M&A process, it is essential to ensure that your goals are aligned with those of your team. By ensuring everyone is on the same page from the outset, you can avoid any miscommunication or misunderstandings that could jeopardize the deal process.

Furthermore, aligned goals will help to create a sense of cohesion and purpose within your workforce, making it more likely that the M&A process will proceed smoothly. Ultimately, while there are many factors to consider during an M&A, aligning your goals with those of your team is essential for ensuring a successful outcome.

Rather than only eliminating the disrupting factors for the team in a sale process, you will want them to become excited about the transaction. A new owner can bring many positive changes and new opportunities to the company: fresh perspectives on growth, access to financing, and different types of synergies.

To get the team on board, it is essential to instill a sense of comfort, ensuring the team will get to keep their jobs, and are crucial for the continuity of the target company. Ideally, you want to position the M&A process as a growth opportunity for management, in which they can see their roles and careers improve and thrive in the new setup.

Implementing a financial incentive plan to align interests

A common method to align the team’s interests with those of company founders is the implementation of financial incentives schemes. There are several options you can choose from:

Employee Stock Ownership Plan

An Employee Stock Ownership Plan, or ESOP, is an employee benefit plan where a company’s key employees can be eligible for shares in that company on top of base pay.

In such a plan, an employer can provide an employee with the company’s stock options. However, it is also possible to set goals for existing employees and reward them with shares when these goals are attained, making an ESOP an excellent option for successful performance management and employee retention. ESOPs are helpful for focusing your team on closing the deal: when an M&A deal is successfully concluded, the employees may cash out together with the company founder.

Although ESOPs are a great way to motivate employees and, more specifically, align interests in a sale process, these plans work best over the long term. They are optimal for private equity-backed and VC-funded companies. Ideally, equity grants would be set up several years before a possible sale process, allowing employees to obtain stock options and have them vested. At the same time, an ESOP might mean a significant administrative burden for the company.

Cash bonus

Implementing a bonus scheme can be a good incentive in an M&A deal as a short-term option. A cash bonus can be offered to the employees involved in the process. Not only will this compensate them for their extra effort of working extra hours and doing tasks outside of their regular day-to-day work, but it will also help them focus on getting the deal done.

Although a cash bonus scheme can be easier to implement in the short term, it might be more difficult to establish criteria for receiving these bonuses and to differentiate between employees, possibly leading to a less fair incentive scheme. In addition, it is essential to consider the different tax treatments of cash bonuses across countries.

Cash consideration (percentage of deal value)

Lastly, there is the option of sharing a percentage of the deal value with the team. By sharing your proceeds from the deal, not only do you incentivize your team to focus on getting the deal done, but you also draw their attention to increasing the value of the transaction.

Although the cash consideration option is easy to implement and has the advantages of ESOP without the complexity involved, it is not without its drawbacks. For example, the size of the deal and the implied responsibility might be distracting factors for the management.

Making the best deal happen

Predicting how employees will behave in a new situation remains challenging even if you’ve known your management for years and trusted them completely. Therefore, it is essential to create an environment where your team does not merely accept the M&A, but is excited to be involved and to work hard in order to make the best deal happen.

Are you thinking about selling your company, or would you like help to prepare for an upcoming transaction? At Aventis, we know a deal is more than just money changing hands. As independent investment bankers, we are committed to providing the best advice with our client’s best interests at heart.

Why you should hire an M&A advisor

Consulting an M&A advisor can greatly help align the interests of founders and executives during a sale. Founders are typically focused on maximizing company value, while executives are concerned with their roles, compensation, and job security after the acquisition. M&A advisors are experts at structuring incentive plans, such as employee stock ownership programs (ESOPs) or cash bonuses, to ensure that management remains motivated throughout the process. By fostering clear communication and shared goals, an M&A advisor ensures that the executive team is aligned with the founder’s vision, ultimately driving the company toward a successful sale and smooth transition.

About Aventis Advisors

Aventis Advisors is an M&A advisor focusing on technology and growth companies. We believe the world would be better off with fewer (but better quality) M&A deals done at the right moment for the company and its owners. Our goal is to provide honest, insight-driven advice, clearly laying out all the options for our clients – including the one to keep the status quo.

Get in touch with us to discuss how much your business could be worth and how to maximize the valuation.