The volume of M&A transactions recorded in the first quarter of 2021 was up by 124% compared to the same period the previous year.
But, as exciting as this prospect is, an acquisition or merger will often have an impact on the company’s employees, and its founders, and so founders should try to ensure they have strong relationships in place, with their acquirers and their workforce, to minimise the disruption for everyone involved.
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Protecting employees
The immediate impact of an acquisition on a company’s employees will largely depend on the structure of the acquisition itself. In a share sale, for example, whilst the employing company will now be in the hands of the acquiring entity, there will not normally be any change of employer and (at least in the short-term) the company’s daily operations and working structure will typically remain the same.
In a business or asset sale, on the other hand, the seller’s employees generally transfer to the buyer under the 2006 Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
TUPE requires that affected employees (or their representatives) are informed about the transfer and, in some cases, consulted about its impact on the employees.
This process can be quite involved and time-consuming and employers can face substantial penalties if they fail to follow the correct process, so founders and senior employees should factor this into the timeline for the deal.
TUPE also provides some protection for the transferring employees, including restricting a buyer’s ability to make changes to employees’ terms and conditions of employment or carrying out dismissals because of the transfer.
Shifting roles
Employees aren’t the only people within a company who will be impacted by its acquisition. If they remain part of the business once it’s been acquired, the role of the founder will change and evolve.
Once, they may have been the driving force behind the operations of the company and its business, able to lead the company with considerable autonomy. Post-acquisition, though, they’ll be obligated to work with and report to the board of the buyer.
This shift in role and autonomy can sometimes cause friction, as the founder finds themselves constricted and somewhat limited in their capacity to steer the direction of the company. The founder may well be eager to accept the acquisition and everything it entails, but if the relationship looks as though it might be unhealthy, this could prove challenging for all concerned.
Founders should try to focus, therefore, on making sure there’s a clear and transparent understanding of how the new business relationship will work. If that relationship suffers, the business may suffer too.
Right relationships
Relationships are a key factor in a company’s success. And relationships around an acquisition are no exception.
Founders need to understand the impact being acquired will have on their business, on their employees, and on their own positions. With the right relationships in place, though, they can remain informed and able to inform, and be ready for the change and what it means for the company’s future growth.
Oliver Spratt is of counsel at Morrison & Foerster
