Business Transition Impact on Employees

Major business transitions in leadership, financing, or structure are extremely common for mid-sized companies and the global pandemic hasn’t slowed down the cadence of middle market transitions one bit. However, COVID’s impact on the workforce and talent dynamics may have made middle market leaders acutely more aware of how their people factor into the equation when a significant change is on the horizon. 

It's not that leaders didn’t think about the impact of a transition on their employees before COVID. Indeed, as documented in our 2020 Preparing for Major Business Transition report, released just prior to the onset of pandemic, about one out five executives cited positive impact on company culture and/or improved employee morale as a positive outcome of transition. A similar proportion noted disrupted culture and/or increased employee turnover as a negative consequence. 

However, after two years of dealing with exacerbated labor shortages and intensive human capital management issues, a growing number of leaders is taking the people factor into account when considering major business change. According to our recent survey of 300 middle market companies that experienced transition since the pandemic or are planning transition in the next two years, 32% of leaders noted positive impact on company culture as a success factor in a past change. A slighting lager proportion (38%) will consider culture when gauging the outcome of a future change. 

The survey results signal several other interesting ways in which employees are and will be a primary factor in transition planning. 

Transitions increase workforce size.

Historically the middle market has represented just 3% of all U.S. businesses but has provided 1/3 of all U.S. jobs. These companies clearly rely on the workforce, and the workforce relies on them. When middle market companies change, acquiring talent is a key driver of the transition for 25% of middle market companies. But even when building the workforce isn’t a primary impetuous for change, significant employment growth is still typically an outcome of business transition.

According to the survey data, nearly four out of five companies that experienced a transition in the past two years saw their workforce expand post transition. The average rate of post-transition employment growth was 7.1%. Companies planning future transitions have similar expectations for how the size of their teams will change: 78% of companies anticipate employment growth as a result of future transition and the average rate of that expected growth is 6.7%.

Furthermore, middle market companies don’t just grow the workforce after the change is made. They often hire in anticipation of forthcoming transitions. Nearly a quarter (22%) of companies said they hired additional employees to prepare for a recent transition and 30% of companies say they will onboard more people in preparation for their next major business change.

On the other hand, for some companies, transitions also present an opportunity to streamline the workforce or let go of talent that may not be contributing value to the company. However, this is much less common than workforce growth. Fewer than one out of 10 firms (8%) said they let go of some employees in preparation for a past change.

Keeping the existing team intact is critical. 

While middle market leaders fully expect to welcome new employees when they transition, they are also extremely concerned about their existing workforce.  Indeed, employee satisfaction ranks as one of the top three measures of a transition’s ultimate success. More than half (52%) of companies specifically measure workforce satisfaction when assessing the outcome of the transition. 

During the transition, looking out for the interests of current employees is the number one most important item to think about with 85% of leaders citing this as a critical consideration. Most middle market leaders admit to spending some time and energy worrying about the impact on their employees. And they say that effectively communicating with employees during the transition and keeping them on board both throughout the process and in the aftermath of the change are the most challenging aspects of the entire transition process. 

Losing a key team member can sour the deal. 

In most cases, business transitions are considered good for business and a success for the leaders who execute them. Employees satisfaction is a major factor in this assessment: three-quarters of companies that have undergone recent transitions say that the approval of their teams has been high. However, for the minority of companies expressing dissatisfaction with the past transition, loss of key long-term employees is a primary spoiler of the experience. 

Even when things go well, some executives believe that more could have been done to improve the experience for employees. When asked about the one thing that could have been better during the last transition, some leaders mentioned increasing top-down communications to employees, having a better understanding of culture, or hiring more new employees. 

Middle market business transitions must work for every member of the team. 

The U.S. middle market is inherently dynamic, and as the past several years have demonstrated, mid-sized companies are likely to continue evolving through any economic circumstances. However, as major employers of the U.S. workforce, changes in these organizations have significant impact that extends well beyond the c-suite. As business owners, executives, and leadership teams continue to contemplate the next major shifts for their companies, it is clear that they are keeping their current and future workforce in mind. Data suggest that middle market leaders will continue to put in the effort to ensure that business changes are successful for everyone involved in the process. 

About the Research 
In March 2022, the National Center for the Middle Market, in partnership with Fifth Third Bank, surveyed a group of 300 middle market executives including executives from 150 companies that underwent a business transition in the past 24 months and 150 executives from companies planning a business transition in the next 24 months. The companies surveyed span all middle market industry segments and more than half of the companies are family-owned businesses. The survey sought to understand how middle market companies prepare for and executed business transitions and how the middle market business transition landscape has evolved over the past two years. 

About Fifth Third Bank
Fifth Third Bank, National Association, established in 1858, is a diversified financial services company headquartered in Cincinnati, Ohio. Fifth Third is among the largest money managers in the Midwest. It operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth & Asset Management.