One of the values in doing an acquisition is an opportunity to enhance an organization's talent. Some companies are even making acquisitions purely based on talent. But how should you structure talent-focused acquisitions? Is it any different than other types of deals? Joining us to discuss this subject matter is Christina Ungaro, head of corporate development at JLL.
“We've got to keep people motivated and happy. Money and handcuffs alone aren't always enough to keep people around.” - Christina Ungaro
A talent-focused acquisition is a type of deal where you acquire a company because of its people; for their skills, domain expertise, or client relationships. That’s why the biggest risk in these deals is people leaving after you close the deal.
And that is the premise of how you should approach your due diligence and the deal’s structure. You have to pay extra attention to understanding the employees and their culture because you must assess how committed the employees are to working with you post-close.
It is why deal sourcing and evaluation of a potential opportunity could take months. Determining a good culture and mutual fit is vital in talent-based acquisitions. Looking into performance reviews is a good idea to gauge employees on how their own company views their own people.
One of the best-case scenarios in these deals is where the employees are also the owner. They will have a vested interest in ensuring that the business stays successful even after the deal is done. Walk away if the owner is just there to cash in and then retire.
Earnouts is an effective tool in talent-based acquisitions. It will keep the owner or employees motivated to drive growth to the company.
While earnouts can be tricky, the key is to make sure that you are holding the acquired business accountable for things they're in their control. Retention mechanisms, time-based, and performance-based retention compensation models are also a good way to keep key individuals in your company.
“It's important that we learn from them (the acquired company) both culturally and operationally, there’s obviously a reason why we’re attracted to the firms that we acquire, they’re doing something very well.” - Christina Ungaro
As an acquiring company, you have to keep an open mind. The acquired company might bring in a new way of working that will serve best for both companies. You have to be willing to adjust, adapt, and listen to the incoming company.
If you keep a closed mindset and dismiss any suggestions, you will not be very successful in motivating and retaining those people.
Talent-focused acquisitions is all about acquiring people for their skills and specialty. Make sure you can secure those assets before you close the deal. Paying purchase price overtime and earnouts are a great way to get security and to ensure that they are properly motivated to grow the company even after the acquisition.