It’s no secret that staffing firms (and firms in other industries, for that matter) are often engaged in discussions and negotiations about selling, merging, or acquiring. For the last twenty years, I have been advising staffing firms and helping them through these processes. Everyone always thinks they’re ready for these types of transactions, but it can take more preparation than you’d expect. There are a wide variety of things staffing firms can do to prepare to sell, but one of the most overlooked ones is having their contracts in order. That’s why we’ve created this pre-sale checklist.
Here’s why it’s so important. Think about selling a home. To list that home, you have to tidy the closets, clean out the garage, and make sure the attic isn’t filthy or moldy. Even those places you might ignore in your day-to-day become extremely important as you prepare for the open house. Think of all your contracts as the stuff inside your closets, garage, and attic. Though they might be easy to ignore most days, you have to get them organized when it’s time to move on.
As you prepare for sale negotiations, ask yourself the following pre-sale questions to make sure your “house” is in order:
- Is there a change of control provision in any of your contracts?
- Can contracts be terminated upon a change in control?
- Do you need to get consent from a key client or vendor?
- Are your contracts assignable?
- Are you in compliance with all of your contracts? (Especially when it comes to fixed markups or sub-contracting provisions)
- Are all contracts dually executed?
- Is there a 30-day notice provision that needs to be given to certain customers? (I’ve seen this one derail a closing).
- Are all of your contracts in a searchable repository? (If they are, it goes a long way—it makes buyer diligence a smooth process and does not cause issues of compliance that may cause the buyer to re-trade on price).
- Is there a tight process in place to ensure that there are consistent approvals for changes to both commercial and legal terms?
- Do you have the appropriate insurance levels for each contract?
- Do you have any first rights of refusal that you are contractually obligated to offer key customers when running a strategic process?
The list could go on and on, but as a staffing firm evolves, their risk profile changes. This means things that may have been agreed to years and years ago could come back to haunt you. (See? Just like those boxes in your attic!).
And with any process like this, time is your worst enemy. Selling a staffing firm is no different. So as painful or tedious as it may feel to get your contracts and contracting process in order, doing it sooner rather than later can make it a big differentiator for you and help you drive the most value.