M&A as a Labor Market Strategy

One of the challenges of growing a business is finding the right people and retaining them. Business owners often share that they struggle to fill open roles, whether due to a shortage of applicants or candidates lacking the necessary experience. This issue highlights the complexity of managing growth while building a strong team.

It is important to point out that buyers of businesses are also experiencing the same labor market problems, and they are turning to acquiring companies within the same vertical to capture the needed talent, revenue streams, and equipment.

A Glance at Current Employment Numbers

According to a September 2024 report by the U.S. Bureau of Labor Statistics:

• Total non-farm payroll employment increased by 254,000 in September
• The unemployment rate changed a little at 4.1%
• Employment continued to increase in food services, drinking places, health care, government, social assistance, and construction
• Employment showed little change over the month in other major industries, including mining, quarrying, and oil & gas extraction; manufacturing; wholesale trade; retail trade; transportation and warehousing; information; financial activities; professional and business services; and other services
• The number of people jobless for less than 5 weeks decreased by 322,000 to 2.1 million
• The number of long-term unemployed (those jobless for 27 weeks or more) was little changed over the month at 1.6 million
• The labor force participation rate was 62.7% for the third consecutive month
• The employment-population ratio was little changed at 60.2%
• The number of people not in the labor force who currently want a job, at 5.7 million, changed little in September

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M&A as a Labor Strategy

Mergers and acquisitions are powerful strategies for companies to resolve staffing issues. It makes it possible to access a workforce that is immediately available.

Mergers can also be a positive force for employees because it can benefit their career prospects. When a larger company is created, so are more opportunities. However, it is key that the process is managed correctly to keep these employees sticking around to reap the benefits, such as higher wages and better benefits, as well as new opportunities to train and upskill into higher positions.

However, the key to success on either side of a transaction is ensuring that existing employees remain at the center of the deal process, keeping them informed through clear communication of the future. The last thing you want is valuable talent jumping ship simply because they are uneasy and unsure regarding their stability and their future with the company. It is critical that there is a smooth transition in any M&A deal, so there needs to be a clear plan regarding the company’s values, expectations, and cultural integration. Human capital is a vital component for any organization, so people need to be treated as a priority in any transaction, especially for maintaining the company’s value, as gaining the key talent is often the reason for an acquisition in the first place.

Having an integration team for any merger or acquisition can be a game-changer in how successful the transition is and how much key talent can be retained or added. It is easy to get wrapped up in the financial numbers game. Too much focus on the financial side of a deal can be detrimental to its overall success. People are incredibly important to any business, which carries over to customer relationships. The best talent maintains good relationships on a daily basis with your clients and vendors, which are all critical to your company’s overall success. You will want to handle any significant changes carefully to keep the important people that make your company what it is. This means being upfront and honest, having a clear communication plan determined early on in the process, demonstrating empathy, not putting off any communications, keeping employees involved, and avoiding any actions that could make it appear that you are hiding something.

Many companies are also turning to automation and artificial intelligence to address labor shortages, which is also a driver of acquiring other businesses to gain more advanced technologies. But this is only effective in some instances and can only be part of the solution. For these reasons, mergers and acquisitions to gain talent will remain a priority for businesses dealing with labor shortages.

How an M&A Advisor Can Help

By working with a reputable M&A advisor, you will have a partner in your corner to help you navigate the complicated transaction process and carry much of the workload for you so that you will be able to remain laser-focused on running your business successfully and paying proper attention to the employees that are so valuable to your organization.

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