One of the primary drivers, in addition to growth, for the current acquisitions of practices / fees is the desire by the purchaser to also retain any professional staff that may currently be employed in the practice for sale. This is also generally a key criterion for selecting the right purchaser with most vendors telling us that their order of priority is to find a good new home for their clients, for their staff to continue to be offered employment and be well looked after, and for them to also achieve a good and fair outcome. We have found wherever the vendor is primarily focused on the money, the transaction has more than likely turned out to be a nightmare.
Thus, there are a couple of key factors that will influence the retention of a vendor’s staff. Firstly, generally the staff won’t know that the practice is for sale until well towards, or perhaps after, settlement. It is becoming more common for purchasers to wish to meet with staff prior to settlement, and in some cases, a purchaser may only wish to proceed if the staff commit to staying post transaction. However, it’s also important not to unsettle staff until an outcome is known. So, what we now tend to recommend is that the contract for sale be finalised, and desirably exchanged, and due diligence be performed to the point where both parties are willing to proceed to settlement, and at that time the purchaser then has the opportunity to interview the staff. However, we’re less in favour of the stipulation that staff must stay post transaction for the sale to proceed, as these third parties are not privy to the terms, conditions, or benefits contained within a contract for sale, and furthermore, questions arise as to the length of time they have to stay etc.
However, what has become particularly apparent as important in the successful retention of staff post transaction is the commonality in which staff are managed. Where the two firms have a similar culture, management style, and performance expectations, synergies are likely to develop, and staff assimilate. But the greater the difference, the less likely to the purchaser is to retain the vendor’s personnel, which may be influential upon any outstanding retention sums linked to the recurrence of revenue.
We have clearly experienced this in at least two transactions, on both occasions where a sole practitioner merged into a larger firm. We have to remember that often in a sole practitioner firm, there is a more relaxed approach to work, to performance targets, to timesheets, to training, to meetings, to social gatherings, with often the principal often almost considering their staff as their family. This is not to say that client work isn’t completed in a timely, professional manner, it’s just less structured than how it often rolls within a larger firm with more staff. Once the vendor’s staff are integrated into the new firm, and their management style, processes and procedures, they can tend to become dissatisfied or disillusioned with new approaches and leave, seeking out opportunities more akin to their previous modus operandi. However, that said, it’s difficult for the purchasing firm to run two groups of staff in two different manners, without causing greater long-term impacts.
Thus, before committing to a transaction, as either the vendor or purchaser, it’s very important to have detailed discussions around how each firm’s staff are managed, appraised, mentored, trained, communicated with, and the like, particularly where it is important to one or both parties to retain those individuals. Yes, there is likely to be some change, however where this is significant, we have found some, and in less frequent occasions, most personnel moved on within the first six to twelve months.
