What to do before selling your staffing business

Given the consolidation in the staffing industry of late, a sale transaction likely is on the horizon for many staffing business owners. If you are among them, here are some important things to keep in mind.

Retain professionals in advance. If you are contemplating a sale, the most important thing you can do is to put into place a team of attorneys and accountants — ideally, several months before a buyer is at the table.

Mergers and acquisitions lawyers experienced in staffing industry deals have seen the issues and are well-versed in the pitfalls of transactions. Many important business points are won and lost at the term-sheet stage, and lawyers should be involved from the get-go. Likewise, your accountants should be involved from the beginning. Tax and financial considerations are likely to come into play, especially in the structuring stage, and they should be on your radar at the outset. Professionals know what to look for and will be able to guide you throughout the deal process.

Engage a business broker. You would be best served by hiring a broker or investment banker to find a buyer. The right brokers have large networks to tap into and have the ability to maximize value for a business owner.

Remember confidentiality. Ensure that potential suitors agree to keep confidential any and all information they learn in their due diligence and to not poach existing clients. Many potential deals turn out to be false starts, and it’s important to keep the business’s goodwill out of a competitor’s hands. Likewise, initial disclosures can be limited and identities kept secret until the deal materializes.

Focus on important deal points. There is no such thing as a “cookie cutter” deal, but a seller’s concerns will most often revolve around the following issues:

  • Purchase price. The purchase price might be all cash, or all or part “earnout,” in which the seller is paid a percentage of the business’s revenue that the business earns after the sale. The payment terms of any cash consideration are negotiable, and can vary from full payment at closing to small upfront payments with further installments over the years. For an earn-out, there can be meaningful tension between the parties’ interests — the buyer will want control over its new acquisition, while the seller wants input, the ability to impact future success and other protections to achieve earn-out targets — and the balance will be a negotiated compromise, at best.
    If an earn-out is involved, your attorneys should try to obtain “catastrophe protections” that would delay earn-out calculations or lower targets if unforeseen market or other force majeure events occur that negatively impact the business.
  • Representations, warranties and indemnities. Sellers are required to make representations (or promises) about the business being sold and other factual and legal matters, and to indemnify (reimburse and defend) the buyer if the buyer suffers losses or claims as a result of those representations being inaccurate. The scope of the representations, duration of the indemnification period and any caps or limitations the parties negotiate will directly affect a seller’s risk of future liability, sometimes long past the date the seller is no longer involved in the business.
  • Other arrangements. Will you remain involved in the operations of the acquired business? As an executive employee? Or a consultant? Financial considerations and future goals are all tied into these decisions, and it is important to consider what your future involvement, if any, might look like.
  • Security. If any sale consideration is deferred to a future time, you will want some protection. Promissory notes, security on the equity or assets sold and other mechanisms are available to give some comfort of payment to a seller, but, of course, nothing beats full payment at closing.

A business sale is often the consummation of a professional’s work efforts for years or even decades. A level head and the right advice will go a long way to making sure the deal is a success.