EP 31 | Mastering Mergers: Employee Retention Tactics for Business Success

Paloma Goggins 0:01

In the world of business, not all deals are what they see. Fortunes rise, empires crumble all with the stroke of a pen. Mergers, acquisitions, hostile takeovers. Welcome to mergers she wrote where we examined strategies and stories behind the biggest. Deals in business because in m and a, the real risks are the ones you don't take. Welcome back to another episode of Merger She wrote, I'm Paloma Goggins, your host and the owner of Nocturnal Legal. Today's guest is David Horry, and he's going to talk with me about retaining employees and figuring out how to retain employees during the m and a process, which we all know is a big boon. Everyone wants to keep key employees when they acquire a business. So I'm gonna give a little introduction about David, and then we're gonna jump right into the questions. So David buys profitable local businesses between eight and 120 employees with 1.5 million to$15 million in revenue. And he is a self-proclaimed entrepreneurial what did you call it? A recovering entrepreneurial junkie. Is that what you,

David Hori 1:21

you

Paloma Goggins 1:21

call start

David Hori 1:21

junkie? Yeah.

Paloma Goggins 1:22

Startup junkie. And he has a focus on preserving what founders built, including their employees, culture and legacy. David, thank you so much for being on today.

David Hori 1:32

I'm so excited to be here. Thanks, Paloma.

Paloma Goggins 1:34

Yeah, so let's jump in. I think, one of the things that's great about your background and to fill everyone in on the listener side, David had so has some really great background experience with m and a transactions and being able to make the transition. All of the employees or keeping key employees or retaining employees. And if you have not gone through the process yet as a buyer this is something that can be, make or break for post-closing revenue, retention and success. So one of the first questions I'm gonna ask David is. You've been in the room on multiple acquisitions as an integration leader, as the operator being acquired, an outside advisor, what's the one thing that you wish every buyer understood about people risk before they signed a deal?

David Hori 2:25

The biggest risk in acquiring an entity that involves people is that in the absence of facts, everybody's mind is gonna fill something in. And you have the tremendous opportunity to make sure that's positively framed. And the, the flip side is if you don't fill it with anything, the likelihood is it's gonna be filled with some real nasty fear. So use that opportunity and create a platform to start. Highlighting growth potential, all of those things. Because again, otherwise it's really easy to get into the head space of is my job gonna be okay? Should I start looking elsewhere, et cetera.

Paloma Goggins 3:12

Have you found through your personal experiences that there's a better timeline? Because I feel like that is a conversation that I have so frequently with both buyers and sellers, doesn't matter which side we're representing about. How do you go about. Telling them, when do you tell them? And so many times I find sellers opt to tell their employees like the day of closing, which to me is just the most terrifying option of all of the ones.

David Hori 3:38

Terrifying is a great word. Yeah. So the answer is if you can start building greater transparency into your company as a leader, as an owner, it is going to pay out dividends in the future, including, especially. In an exit scenario that cannot be calculated. And when you start with kind of this fact that businesses either sell. Or they slowly start winding down business and close their doors, which is not a neutral decision, right? That, that there's, that actually costs you money to do that. Then you can start making incremental steps towards greater transparency and the sooner. You can bring your team into, whether it's your key leadership team, whether it's all the employees into the fact that, hey, it's no secret. I'm not gonna be around forever and I wanna make sure you guys are really well supported. And we're gonna start putting some things in place to make sure that happens and you can communicate along the way. That's what the last company that I was an actual employee of where we were acquired. We were able to do really well is have weekly meetings with the entire team and give them some really high level updates about, the search some potential kind of things they could be excited about and what it enabled without giving, bringing them fully into the know on who it is that's looking at us and we're in conversations with, and what are the different tenants that's being negotiated on. Does that make sense?

Paloma Goggins 5:08

Totally. And I was gonna say too, I think your point earlier makes the most sense, which is like the less unknowns there are, the less panic, the less fear, the less do I need to find a new position? But also, even if you didn't wanna find a new position with an ownership change, I think inherently the question begs, am I gonna like my new boss? Am I gonna the people that come in and start making decisions from a leadership role? I think especially in we are industry agnostic, and I will say one of the things that typically blows my mind in the medical space that we see it quite frequently is we'll have a physician who's selling their medical practice and think about how personal your relationship is. Same with accounting practices. We see this all the time. You know this person for years, and all of a sudden you're. Book of businesses sold to a new accountant, a new physician, and you're probably providing notice post-closing to a lot of your, routine clients. Routine patients. And I just always give people the example of. Put yourself in the shoes of someone who has seen you for the last 10 years as like a one-to-one relationship, and all of a sudden there's someone completely new that you just threw into the mix and you didn't do a good job introducing them. You didn't do a good job of making an introduction, like one-to-one with your potential patient or, I always tell people, I'm like, especially in the medical world, I'm like, it would be great to have a shadowing period instead of a like. I'm done. I'm going on vacation now and I'm just gonna let them take the reins. And so I think it's fascinating to see how people choose to make that transition, but I also feel like besides the fascination, it can be really difficult to watch the train wreck that befalls people when they don't do the right things to set themselves up for success. Especially when there's an earnout or some sort of, extra payment based on revenue.

David Hori 7:06

Yeah.

Paloma Goggins 7:07

So Absolutely go. Go ahead. I didn't mean to cut you off.

David Hori 7:11

No I'm just agreeing. Train wreck is a perfect description for what can happen and often it doesn't require that much of a different approach because there is gonna be handoff. You just never highlight it. You don't tell people, you don't say that. By the way. There is gonna be some significant overlap to make sure that things are gonna be transitioned really well and we have a plan for it actually. Sharing that information with your team, with your customers, your vendors, makes a difference versus just by the way, meet the new owner. And good luck. Completely different.

Paloma Goggins 7:46

I think this makes a really good segues to my next question because what stopped me when I was reading your background is that 95% employee retention during the integration of an 1100 person division into a 500 person company. That's a lot of people to be transitioning. That's an extraordinary outcome and I know industry benchmarks suggest 30 to 40% attrition is typical in the first year post close, which for anyone listening who doesn't know that stat, I'm sure you're just as shocked as me when I was looking it up. So walk us through how that was accomplished with that 95% employee retention.

David Hori 8:23

Yeah, I'll just highlight some of the factors that both were incidental and then also by design. One of the things that we had going for us that was incidental was that the timing of close was just around the holidays and nobody wants to go out and find a new job, in December, in January, right? And so we had that going for us, but a lot of time and thought and energy went into setting. The stage for this all to happen. One thing is that once the executive team of the acquiring entity was reasonably certain this was gonna go through, they brought together a media team to record interviews with each of the executives and key team members and departments across the company. So they have a national footprint and that required, coordinating different locations across the us. But a welcome video was recorded in advance so that on the day of close, when it was announced to these people that are going to be a part of this carve out there's this welcoming message. You're getting into a sense of the faces that you're gonna be seeing the leaders, what we're about, they're highlighting growth. We're in growth mode. We have, we, we see so much opportunity. And so it, rather than being acquired by the scary competitor that you've been butting heads with for decades, there's a. Completely different narrative from day one, minute one of the announcement. So that was one thing. The other thing that I'll highlight is that we understood already in this small, 500 person company who were the absolute. Culture champions of the company who are the raving fans of the business, who've been there for years and years from the beginning and had tremendous opportunity to scale their careers. Great. We're going to turn them into what we call culture ambassadors, where we're leveraging that goodwill and. They were partnered one to many with the incoming individuals to get them, not just a friendly face and connected to somebody personal on the inside, which sometimes takes years to develop after an acquisition, you never get around to meeting Who's on the other side of the fence, so to speak. Then there was also the advantage of, they're not gonna solve all your problems around ah, my payroll got screwed up, or, I'm having a problem with my benefits. But they have that institutional knowledge that's really valuable of who do you talk to? How do you get things moving forward and resolved? And so again, this was a one to many where we matched one culture ambassador with, 10, 20, 30 incoming new employee team members. And they had a personal connection in addition to hr, in addition to a lot of other things. Those were some things that I think were really foundational to setting up that high retention rate.

Paloma Goggins 11:04

I think the idea of having a video is super neat and also I don't, I feel like small businesses could really borrow. The ideas and systems that big corporations utilize and just minimize them into a space that makes sense. So like you were talking about all these like key executives making videos, explaining who they were, putting a face to the name. Totally applicable too in the small business world where, maybe you don't need a video, maybe you just need to sit down and have, break bread. I'm a huge fan of sitting down and having lunch or dinner, and making those connections. So timeline wise, when they were doing all this, because it sounds like it was really well thought through how far in advance of closing and making the transition was this started like I could just, I just know having worked in a big corporation in the past, there's so much red tape. People always say, oh, it's a six month project, and then it ends up being like a year or two. So like how much runtime was there before closing for this all to get aligned and set up?

David Hori 12:06

Yeah, so I was retained somewhere in September and October, and you know how these things go, where they're like, we're gonna sign tomorrow, we're gonna close tomorrow. So buckle up, get ready. And thank goodness that it didn't actually close until the very first week of January, because I needed every single day to. All of this in place and organized and a lot of other infrastructure too, since we really were like the minnow swallowing this giant whale 500, acquiring 1100. There's some basic infrastructure that needed to be built and hired and then trained and all of that. That, if that gives you an idea of the timeline and then the hard work starts, which is the integration piece.

Paloma Goggins 12:46

And I think that. Idea of, okay, I'm gonna say this. I think I, I say this every time I'm talking about post-closing success, but I want listeners to really understand and appreciate that the work starts not necessarily when they think, which is okay, the deal is moving into your point. People are always like, we're closing tomorrow, we're closing before the holidays. I always joke, I'm like, anybody who starts a deal. In the beginning of November, end of October. I always tell them, I'm gonna be really honest with you, there is probably a 50 50 shot on you actually closing at the end of this year, because inevitably the hurdles are Thanksgiving and Christmas and any other holidays in between that people take. Like the major bank holidays and time off that people take inherently, because that's when everybody else has PTO. You just have less people available and less resources. And so I don't think people like it when they hear that from me, but I just like to be a realist because everybody thinks we're gonna push really hard and get it done and sometimes we do. But the reality, the harsh reality, I think, is that a lot of times you get pushed into January and then of course the Q1 madness kind of prevents you from. You still get closed in January, but it's, I feel like it's actually a lot more hectic than getting it done around the holidays. But I digress. So I wanted to go back to talking about how you have said something that was really important, which is that the integration piece is when the real work begins. Because so many times I'm working with a buyer or really a seller too, who has post-closing transition support obligations, right? And everybody thinks, okay, we closed. Yay, we're done. And I'm like no. It's, this is where the hard work starts. And everybody's really tired, right? They've all got like deal fatigue and everything else. So talk to us about when it comes to starting the integration process, I feel like a lot of times people are overwhelmed. Having worked at, the big companies before, I know there's a system and process when you're a big company acquiring a smaller company. But if you're in this, in the small, mid to lower market, what do you think is the best advice for someone who's starting the integration process? Where do you even begin when you're overwhelmed and you're like, there are so many steps to this. What is the best way to attack it?

David Hori 15:16

Yeah. Again, there's things that you can do in advance to cheat the system a little bit and one of the things that we did that I would never, ever wanna do again or wish upon anybody else, any other deal team, any other integration group, hr especially, we promised the incoming group that nothing about their benefits would change. Which required a Herculean effort to stand up and spin up benefits that were completely new and foreign. And then we were gonna worry about integrating and reconciling benefits so that they were standardized across the following year post acquisition. But I think that. Is really important. You, the last thing you wanna do is create instability or friction when it comes to people's benefits. They're already on some kind of plan with their doctor, to your point. And providers. They don't wanna change providers, their mid treatment or something. That was a, I think, a really big one that, again, bought us a lot of goodwill early on. That wasn't necessarily post-close, but immediately was really powerful. The second is having a lightweight framework that you can use to meet everybody and start establishing who's who in the zoo. And this has benefits all like myriads of benefits across multiple different facets of employee engagement, but really having the leaders already mapped out to, I'm gonna have, a conversation with the key incoming leaders that are my new direct reports or whatever that is, and understand what are their goals. What are their drivers? What, like what do they want to achieve and what kind of challenges do they want to engage with in the future company? And you're starting to map what can we engage them in long term and highlight about our company that helps them understand how do they fit into this picture? And then the next directive is they're gonna do that with their direct reports. And there's those ripple effect where within a matter of weeks, even with thousands of people, you can have that mapped out. And that way. As new opportunities emerge and you're consolidating and shifting things around, you're not taking away opportunities where somebody that just came on board is I would've loved to have known about that. I would've really enjoyed getting a chance to work on that project or, join that new team or something like that. So those kind of, it brings together an HR concept, which is stay interviews, which. It's a great practice to have, whether you're going through a mergers and or acquisition or not. And then also this mapping exercise of who are you, what do you do, what do you want to do? And like what kind of things are gonna be really compelling to you and helping you connect the dots on how that could po potentially be achieved in this new entity.

Paloma Goggins 17:59

I really appreciate when people. That work, live and exist in human capital as part of like their role talks about how business works from a human perspective. Because I feel like it's so frequent that people are dehumanized in the acquisition process, right? Okay, I've got team X, I've got Team Y, and I need both of those to stay on board in order for us to continue operations. Completely uninterrupted, but nobody really. Has the thought, and I loved what you said, which is have interviews with people. They're not exit interviews, they're not interviews for hiring. They're interviews for what are your goals? What does this look like? What is your professional dream? And how do you support your human capital in their dreams? Because I feel like so frequently business owners are so entrenched in the business operations that they don't spend the time to be like. Okay. Yes. Are you getting all this stuff done for me? Sure. Great. Check the box, but you don't turn around and then say, okay, how am I supporting you? And I think that is really the key question in all of this.

David Hori 19:06

Absolutely. And you can still get a lot of that data through those conversations that you may want to have. If you know even that, that there's going to be cuts. You're gonna get a lot better information about who might need to be on that list. If you're couching it in a conversation around like, how do I make sure that you are engaged for as long as you're here? Obviously you wouldn't add that last part, but it still matters whether they're a day, a week, three months, nine months and we know even with the best laid plans we're like, oh, there's gonna be an immediate riff. Is there, you might still be nine months later, still trying to figure out this messy integration, so why wouldn't you know how to keep these people engaged in what they wanna work on and make them feel connected to the company?

Paloma Goggins 19:53

Totally. I think, as a final question for our episode, I really want to ask, because I know you haven't just been on the integration side, you've also been on the side of building a business that ultimately was purchased. And so from a founder perspective. Who's going through the acquisition process? Just signed an LOI. They're in diligence. What are three things they could do in the next 30 days? Let's assume like most small business owners, they haven't done a lot to prepare, which, if you're listening to this and you're a small business owner and you're thinking about selling your business. Give us a call. It does make sense to talk early. It helps, I promise. Even if you're a year out, we still have more runway than 30 days. I feel like most of the time we're working with businesses that are like, we're selling today, and then we're forced to build the plane while we're flying it. Don't do that. Don't be that person. So if you're in the next 30 days, what could they be doing to protect their team?

David Hori 20:48

Number one, call Paloma. I'll just double down on what you said, but, tongue in cheek, get your advisors in place. It's never too early to have those conversations. And it's going to be some of the best well spent time, energy, and resources earlier in the process. An ounce of prevention is the going prevailing logic here. Couple things I would highlight that are really important. Start getting the things that are in your brain. Out on paper. That's a really easy step and it can be just the highest level outline of here are the top 10 things that I do every week. And you, it doesn't have to be fully fleshed out or explained or organized. Just start documenting it and likewise those key processes, if you don't have those. Documented, start a plan that gets those things onto paper or into a spreadsheet or whatever that looks like. So those systems and processes need to be documented. I was literally speaking with a business owner on a, an acquisition that I'm working on right now. And, he still said ah, it's been this like fast and loose. Everybody knows their role. It's that's great. I love that. But if you started documenting it today, even though we haven't closed yet we're gonna be in such a. Different world. So start documenting process is one. The second that I cannot, man I'm curious. I'm sure you have just terrible horror stories about this. Keep your foot on the gas selling and signing an LOI is literally just lighting the fuse on the powder keg. And if you let off the gas. Suddenly closes can become untenable. Literally. Like it's not fundable if revenues decline to a certain point or any kind of loss of momentum, you wanna be building for the moon all the way into the point where you've signed on the dotted line and the money has transacted and and beyond. Because often to your point, there's an earnout too. You don't want to let up on the gas. So that's number two. Number three I would highlight is it's never too early to start and trusting your team. And again, if you haven't ever been transparent with them the they sign, an LOI is not the time to start. But there's probably small, tiny steps that you can start to do Hey, it's no secret I'm not gonna be around forever. Have you thought about, like who would make sense to, to step into my shoes at some point? Either internally, externally, what ideas do you have and just start talking about it and normalizing it so they're not completely blindsided. And the reality is they probably won't be, they'll know, no surprise you're 70 and your kids don't want the business. So we figured it was gonna happen some point. Involve them in it. They'll have great ideas, great input, and again, start building that transparency.

Paloma Goggins 23:29

Well said. And I do think to your point, the sooner that you start putting down on paper the things that you work on every day and your team works on every day, and if you don't have SOPs in place, I think that's a wonderful place to start no matter where you are in the transaction process. Appreciate your insights, David. And so anybody who's looking to get in touch with you, tell us what are you looking for? Who are, who's the great person to reach out to you and what are you looking to acquire?

David Hori 23:59

Yeah, so if you're a business owner, small local business owner and you're stuck. Reach out to me. I'm easy to find on all the socials. I'm sure it'll be listed in, in, in the podcast details. But if you're stuck, talk to me whether you need to take a step back and just remove some of the many hats that you're wearing or you need to exit entirely. I'm happy to at least start highlighting some of the options that you have. What I've found in talking with business owners about buying their business is that there's just tremendous void of information around what to do, what to expect, where to start. And that leads me to my second point. I found there were so many. That just needed, like, where do I start that? I'm, I've started and launched a webinar, a weekly webinar every Thursday for business owners that want to know where do I start? And it just starts to shed some light on kind of the general landscape of some of the options that exist, who you should be talking to, and we'll be talking to those kinds of things. And if that's helpful to any business owner out there, whether you wanna sell now, a year from now, 10 years from now it's free and it happens every Thursday. I can provide details around that as well.

Paloma Goggins 25:10

Yeah, we'll put a link. You can share it with me and we'll put a link in the in the podcast page and then also on YouTube. But thank you so much for coming on merger. She wrote, this was an awesome story to tell and honestly, I think if you have been considering at all the idea of selling your business and you've got key employees, this is something that you do not wanna overlook. It is just one piece of the puzzle, but it is a very important piece.

David Hori 25:37

Agree.

Paloma Goggins 25:37

So if you enjoyed this episode, please comment or share, and stay tuned for our next episode in two weeks. Alright, let.