In acquisitions of service businesses much of the value of the target will often be tied up with the key employees and the relationships generated by them. The consequences of losing any of these key employees post-completion could be disastrous (particularly if there are no long-term contracts which will require clients to use the business for a minimum period post-completion).

In these instances there are a number of steps which purchasers can take in order to strengthen their position:

• Building a good relationship with the workforce during the negotiation process (particularly if this is a business purchase and a TUPE consultation is required). "Loyalty bonuses" can be introduced which incentivise the employees to remain with the target business (however the value of these will often depend on the extent to which competitors are prepared to pay significantly over the odds to poach key individuals).
   
• Restrictive covenants and notice periods in target employees' contracts should be reviewed in order to ascertain whether they give adequate protection - consider whether they can be strengthened in conjunction with an enhanced bonus package. There are however legal limitations on the duration of restrictions, beyond which they will be unenforceable. Also, if this is a TUPE transfer, from a legal perspective the only way in which the purchaser can be reasonably sure of enforcing enhanced covenants will be through requiring the employees to sign compromise agreements, which may or may not be commercially viable in the context of the overall negotiations.
   
• The restrictive covenants entered into by the seller should be carefully negotiated - merely using a pro forma template set of restrictions will rarely be sufficient. Covenants which go beyond what is reasonably required to protect the goodwill are likely to be unenforceable. Consider also whether the drafting of the covenants correctly reflects the nature of the relationships which are being addressed - for example, the contractual relationships may be with the ultimate customers, but business may be introduced solely through intermediaries, in which case non-solicitation covenants should extend to these.
   
• The seller may be prepared to agree to a proportion of the purchase price being subject to an earn-out mechanism, so that it bears part of the risk of post-completion defections. Negotiations of any such mechanism will however be inherently difficult, and the seller will almost certainly wish to impose restrictions on the purchaser's conduct of the business during any earn-out period.