Where is the real value? In the Company or the Employees?

November 5th, 2008 by


Often, when a company is looking to acquire another business, it looks at all of its gleaming equipment and its wonderful balance sheet as the reason to purchase the company, but in reality all of that success is probably more tied to the employees that work there then the systems or equipment associated with the business. Both Buyers and Sellers of businesses need to keep this in mind from the very outset of negotiations.

A business, as a buyer, needs to be aware of where the value lies and ensure that it is receiving that value when it purchases the company. This may be through opportunities to retain the current employees as well as non-compete agreements for after the sale commences.

For sellers it is extremely important to ensure that there is an agreement that the potential buyer will not simply hire away the sellers most valuable employees. When negotiations begin the potential buyer is given access to the inner workings of the sellers company, and thus may realize that the real value lies in a handful of employees. If there is not a Letter of Intent or other agreement prohibiting the hiring away of that top talent, the buyer may simply call the deal off and acquire the most valuable part of the seller’s business without paying the seller a dime. Courts in Wisconsin will generally up-hold Non-Solicitation agreements for up to 2 years.

From a buyer’s standpoint it is important to be diligent and ensure that the valuable part of the company comes with the deal, and conversely it is in the seller’s best interest to protect that valuable commodity until the deal is finished.