IT consultancy sells to listed company who keeps key employees
- John Deane
- Updated: Mon, 16th Jan 2017
Gannons represented an IT consultancy in the sale of their entire business to a listed company.
Heads of Terms
The Heads of Terms was negotiated before either side consulted legal advice. This was both good and bad: Who wants to involve lawyers; but there was scope for negotiating the non-legal terminology.
A Heads of Terms is almost always non-binding. The exceptions are usually provisions on exclusivity and confidentiality. So there was room to negotiate away from the Heads of Terms. However, we recommend half an hour with a lawyer prior to signing the Head of Terms.
Perhaps then, which was our challenge, both sides might have pinned down terms such as the real meaning of “the seller would commit to the company”.
Gannons’ deep experience in employment law has come to the fore in our work on recent acqui(re)-hires. Acqui-hire mean acquiring a company to recruit its employees. As a boutique business firm, we know:
- How to structure a sale of a business,
- How employment contracts play out in practice.
We represent clients to ensure the sale proceeds smoothly. Future employment arrangements should reflect both parties true intentions. In employment agreements, the courts usually side with employees as regards restrictive covenants. These covenants should be drafted as shorter rather than longer term, with minimal restrictions.
Share Purchase Agreement
However, the courts take a different view when there is a Share Purchase Agreement with earn-out provisions tied to certain employees remaining in place. The courts less likely to deem these covenants an infringement of employee rights, and the Share Purchase Agreement provisions are usually enforceable.
It is now common for buyers of service industry businesses to tie workers into their business. This is understandable because it’s the employees that the buyer really wants. Nevertheless, employees need to know what happens if their future employment does not work out. They do not want to be unduly limited in either their search for future employment, or subject to unreasonable loss of proceeds on the share sale.
Finding the right balance between employment provisions and protecting the seller is tricky. In the case of an acqui-hire, the buyers and sellers must remain on good terms during the sale process. After all, the buyers are going to be the sellers’ employers.