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Buyer’s Focus: Your Customers & Employees

Buyers Focus

Employees. Customers. Finding them. Keeping them. It’s on everyone’s mind right now. For the company or person who buys your business, it just may be their top two concerns.

According to M&A advisors in the Q3 2021 IBBA and M&A Source Market Pulse Report survey, buyers seeking an acquisition were primarily looking to expand their customer base and seeking a trained staff.  

Customer base and trained staff (longevity, loyalty and work ethic), ranked ahead of other due diligence priorities like operations, revenue and even cash flow.

Since Q2 of 2020, we’ve been hearing from sellers that finding and retaining qualified employees is their number one barrier to growth. Many can’t find the talent they need to meet customer demand, much less open new divisions or expand to new territory.

This shortage of good talent is also one contributing factor in the strong M&A market right now. When businesses can’t grow organically, they look to acquisitions as a path to expansion. That’s why buyers are putting increased scrutiny into the quality of a company’s employee team.

As an industry, we’ve been talking for years about how important it is to have a well-developed management team in place before you sell. Buyers want a leadership group – or at least one key manager – who can maintain the business in the owner’s absence. Currently, the strength of your overall employee team appears to be an even bigger priority.

Here are some of the issue areas buyers are looking at:

Retention. How long have your employees been with you? What practices do you have in place to keep people loyal and committed to your organization? People stay with their employer for more than salary and benefits. Buyers seek to understand why employees are loyal so they can make sure it’s a good fit for their own culture and expectations.

Culture. What’s your company’s/employees mindset? Do they pitch in and support each other in times of need? Have they build a self-policing culture of quality and performance? Buyers are trying to understand if the factors shaping that culture mesh with that buyer’s workplace.

Learning and Development. Millennials are currently the largest percentage of the U.S. workforce, and this employee group, more than any other, wants training and growth. Workplaces with established learning and development programs, as well as those with an organic culture of internal mentoring and promotions, win employee loyalty – and with most buyers.

Cross-training. COVID-19 shone a spotlight on the benefits of cross-training. When business conditions are changing rapidly, it’s critical to have the ability to move employees from role to role. They are better able to fill in and cover for colleagues who want time off, who need extra help during a busy shift, or those who are sick or quarantined and unable to come into work for an extended period of time.

Niche, High-Demand Skills. In a tight talent market like this, an acquisition can be a way for a company to gain access to highly skilled talent. In some cases, this can even be the primary reason for an acquisition. If you have employees with hard-to-find skills and employees who could take on new challenges and help a buyer grow, think about how you can retain them and keep them engaged in the run-up to selling your business. That said, we generally do not advise disclosing your exit plans to employees in advance.

Final Note: A pending sale can cause anxiety among your employees. Some may look for a new job rather than risk an uncertain future with a new owner. Talk to your M&A advisors about your key employees, stay bonuses, and what kind of succession planning is right for your situation…and when to loop them into your process.

Depending on your and your employees goals, we may be able to target buyers who will offer small equity positions to key employees. For the right employees – the opportunity to gain a real ownership stake in your business could be a meaningful incentive that keeps them committed to your company.