Pret a Vendre; a lot of sandwiches or lessons to learn from Pret A Manger's £1,000 employee bonus?

Sandwiches sitting on shelves

What lessons can be learnt from Pret A Manger’s £1,000 per employee exit bonus? And what else can you do to make sure your key people stick around post-completion?

The proposed £1.5bn sale of food chain Pret A Manger to JAB Holdings equates to the price of c375 million packets of their sandwiches. All 12,000 employees will receive a £1,000 payment once the deal goes through, equating to around 250 sandwich packets. Incidentally it’s a good deal for private equity firm Bridgepoint which initially paid £364M for it.  Apparently a listing had been considered but this trade sale at a reported 15x EBITDA is a good one.

Many value drivers can influence the price paid for a business. Key amongst them is the quality of the people. Often the spotlight shines on the management team, but this should extend to the value of all the employees. Of course while the “talent” in a company is not on the balance sheet, it’s reflected in the price.

Clearly Bridgepoint is well aware of this hence the bonus. The bonus should act as a powerful recruitment aid as it’s available to anyone joining between now and the sale completing. 

So what else can you do to make sure your people stick around for the sale?  When we advise buyers of a business, it's important due diligence to ensure that key employees won’t leave as a result of the transaction. So here’s a few things to consider.

Identify who is key and take them into your confidence

As soon as negotiations get serious work out who your most valuable employees are. These might be key managers, or those who’ll lead the integration, top sales people, or perhaps product developers. They’ll probably be a small percentage of your workforce. Nothing damages a business more than gossip about exit. So consider keeping these key staff members in the loop, maybe even adding them to your deal team. But make sure they understand how confidential it needs to be!

Make them an offer they can’t refuse

Money talks, so think about financial incentives. Share option schemes can work well but should be put in place long before you get into negotiations. The EMI, or Enterprise Management Scheme, is usually the “scheme of choice”. But the employee reward toolkit has many other weapons that can be deployed, for example, we increasingly see growth shares in use often alongside option schemes.

If you are too close to a sale to think about options, a cash bonus is a simple and effective tool. It’s probably very difficult to make it tax efficient, so it needs to be motivational after taking account of the Income Tax and National Insurance that will be suffered.

An interesting variation is to implement a deferred bonus which only pays out post-deal if the people stick around. Bear in mind that the buyer will not pay for any bonus and it will come out of your completion cash, including an assessment of the likely cost of any deferred bonus.

Non-cash incentives

A McKinsey survey found that key managers were just as concerned about non-cash issues such as their future and their roles post-deal. Reassurance about where they fit in the future organisation chart and new leadership opportunities can strongly influence retention.

In collaboration with the buyer, it may be possible to scope out their role, and reflect it in a new contract ahead of the deal. The purchaser should be pleased to get the chance to hold on to key people on their terms. This must be an issue for JAB as the retention effect of Pret A Manger’s £1,000 bonus will surely vanish the day the deal is done.

Plan ahead

As with all exit planning it’s best not to leave it until you get too close to a deal. So think about retaining and incentivising your key people in the context not just of today but in terms of any future exit. There’s a host of things that can be done early – so talk to your advisers now and put in place strategies that work and are tax-efficient.

 

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Lake Falconer

Corporate Finance Partner
Lake leads the PEM Corporate Finance team on MBO, acquisition, disposal, succession and strategic planning. He also heads up PEM’s valuation team providing business valuations for shareholder exits, disputes, business planning and regulation. Lake has over 30 years' senior level experience as a business adviser and as a manager in industry. He holds the ICAEW corporate finance qualification.