Each Monday I post one lesson buyers or sellers of a business should know. I learned these tips representing top private equity groups and learning from some of the best M&A lawyers in the world. These are tips that can and should be applied to smaller buyers and sellers.

9/10 Letters of Intent do not include any mention about Seller’s management or employees. Retaining management is an absolutely critical part of Buyer’s success and is almost never addressed.

A plan for executives and employees is not just critical for post-closing success, but also for winning the deal for two reasons: (a) unbeknownst to the Buyer, often management (who are not sellers) are part of the decision-making process, and (b) sellers care deeply about whether their management and employees will be cared for.

Here are some options a buyer can include in their LOI, as appropriate:

1.      Key employees will be offered offer letters at closing confirming their employment terms and industry-standard bonuses (offer letters with key employees should always be a closing condition in the purchase agreement and should include a clear restatement of compensation, bonuses, non-compete/non-solicit/non-disparagement, in accordance with state-law).

2.      It is important to Buyer to include current management in the company’s upside, and thus will be offered vesting profits interest/stock options/exit bonus in the ongoing company.

3.      Buyer will provide a covenant (in the purchase agreement) not to decrease the level of compensation [or execute terminations (outside the ordinary course)] for employees for 2 years.

There are many creative ways to address management and employees. The key is, in the LOI-stage, the Buyer should communicate that it is thinking through these issues and addressing the seller’s questions before they are asked.

This will help you win more deals and ensure a smoother post-closing transition.