Written by Simón R. Barth, Partner at ONEtoONE Corporate Finance Colombia.
In the exciting world of mergers and acquisitions (M&A), conflicts of interest between company owners and employees can be challenging, particularly without established golden parachutes. Before exploring how these interests can affect the company’s sales process, it is essential to understand what golden parachutes are.
Golden parachutes: What are they and why do they matter?
Golden parachutes are contractual agreements one designs to provide executives and directors with substantial compensation in the event of a company sale or a hostile acquisition potentially resulting in termination or a change in position. These agreements are made to protect the financial interests of company leaders during a period of uncertainty, ensuring significant compensation. These are often in the form of severance payments and benefits.
You may be interested in reading our article: Why are your employees working conditions important when preparing your business for sale?
The owners’ conflict of interest: maximizing value vs. protecting the team
With this understanding, we can explore how business owners tackle maximizing the value of their investment while protecting the interests of their employees during an M&A.
The employees: insecurity, potential changes and their conflicts of interest
For employees, a leadership change of the company causes concerns about their future employment and working conditions. Most people fear change and “changing bosses,” especially when they are content with their current relationships. The presence or absence of golden parachutes can significantly impact their attitude towards these changes.
Frequently, I meet with business owners when I have a potential buyer interested in their company for an acquisition. It’s common for them to express interest, as they are ready to retire. They often ask me to contact “Maria or John,” their CEO or trusted person, for all the information required to prepare for sale. Alternatively, when I’m not representing the buyer’s side, they give me a mandate to sell the company.
“Maria or John” often show little interest in proceeding with the transaction. They may pretend to collaborate but delay the information delivery process or even attempt to convince their boss not to move forward.
You may be interested in reading our article: How do I get my employees to change?
How to avoid these conflicts of interest:
One way to avoid these conflicts is by establishing a golden parachute aligning the interests of key employees and shareholders. You will achieve this by setting up a bonus payable by the selling partners. You could also set value ranges based on the achieved sale price and establish an extralegal indemnification in case of termination by the new owner within a certain timeframe.
In many cases, buyers can even turn out to be better than the original employer. Buyers are often multinational corporations with larger compensation packages and opportunities for international career growth. However, sometimes, the buyer fires and indemnifies employees who are not performing well or land in duplicate roles.
Conclusion
In the world of M&A, golden parachutes are just one part of the equation. Conflicts of interest between owners and employees are key challenges that you must carefully address. The key is to find a balance between maximizing value and protecting the company’s most valuable asset: its team. Negotiation and transparency are essential in achieving this balance.
Ultimately, all parties involved—owners, advisors, and employees— should benefit from the results of a successful transaction.
About the author:
Simón Restrepo Barth, Professor of Finance, Board Member, Investment Banker. Partner of ONEtoONE Corporate Finance. Master in Finance from Universidad de los Andes. Certificate in Advanced Valuation with high honors at NYU | STERN, a certification in negotiation from Harvard University and a certification in Real Estate Investment Strategies at Columbia Business School.
If you need advice for the sale of your company, contact us now with no obligations. We will help you prepare and guide you step by step, to ensure you get the maximum benefit from the process.
