Spring 2016 issue of Horizons

PRIVATE EQUITY

Communicate Clearly Communication must be forthright and occur as early as feasible with key employees. However, a seller’s reluctance to inform employees about a possible sale will often hinder the buyer’s access. Based on the Towers Watson findings cited earlier, it would seem that a buyer should push the issue early in the courting process. Naturally, once a point of first contact is to be made, the dilemma of what to first communicate and what/how much to say arises. Though it’s probably not advisable to lead with a discussion on financial incentives, this topic can be a means to open and frequent communication and, therefore, continuing engagement. As discussed, it’s important for a buyer and the subject employees to be on the same page as it relates to post- acquisition incentives. The Towers Watson study found that the vast majority of companies which were considered as being successful at integration used bonuses. However, just over half of the companies considered less successful also offered bonuses. Therefore, in addition to financial needs, successful companies understood the importance of appealing to one’s emotional needs. The Towers Watson study indicated that successful organizations added a personal touch to the equation in order to try and increase an employee’s engagement in the organization. The study reaffirmed that employees who are more engaged in a company’s mission and goals are less likely to leave that company. One tactic that the majority of successful organizations utilized was having their leaders personally reach out to employees.

Plan Early The early identification of candidates for retention is crucial to success. In a global workforce study, Towers Watson, an HR consulting firm, found that organizations that identify talent early are 2.5 times more successful at retaining those individuals than those organizations that wait. How early is early enough? Almost 75% of deal-makers which are successful at retention started as early as the due diligence or negotiation phases. Once talent is identified, buyers should then develop strategies to retain key employees. In practice, retention strategies are inextricably linked with financial incentives such as “stay” bonuses, phantom stock, equity incentives and benefit enhancements. Such incentives are usually limited to key employees, but not always. While in the context of this article it is difficult to say which incentive or combination of incentives is best, we generally find that financial incentives which provide some upfront benefit in tandem with larger benefits to be realized in the future can result in a “win-win” for the negotiating parties. It is critical, though, that a buyer develops and employs a strategy that achieves buy-in from the subject employees, and this can only be done through effective communication.

This tactic successfully engaged the acquiree’s employees by focusing on building a relationship between the employee and employer.

page 46 | horizons Spring 2016