M&A Insights: Labor Dynamics

As part of our year-end review, we reflected on how the current labor dynamic is impacting many of our clients. Those in manufacturing know how difficult it was in 2021 to maintain, much less expand, the workforce to meet increased demands from customers. This problem was echoed in McKinsey’s 2021 year-in-review highlights, which pointed to a September 2021 survey in which “40% of employees said that are at least somewhat likely to quit in the net three to six months.” Wow. Even if off by 50%, wow. The labor shortage has been a long time coming, and per McKinsey’s study, is not going away.

This has implications in the M&A space as well. Last year, a potential acquirer of a sell-side client indicated that “he had a backlog and he had production lines – he just needed workers,” and that this was in part driving his interest in a transaction. Our client had a great work culture which attracted employees and provided low employee turnover – which shielded them from the worst of the labor crisis. For transactions, labor pressure raises the profile of workforce retention and automation to support growth in the face of scarcity of labor. Owners and Managers need to prepare strategies for answering this issue to not only grow their businesses, but also to make the most of transactions.