Merging Two Staffing Firms Without Losing the Key Manager

The situation

Tesfay had worked for years as a registered nurse before she spent a decade building her own healthcare staffing agency in Kingston, placing nurses and personal support workers with hospitals, retirement homes and private clients across the region. Down the road, a business she had competed against for years for the same contracts was run by Biniam, a former millwright who had built his own agency supplying industrial tradespeople to manufacturing plants and mills. The two businesses rarely bid on the same jobs, but they shared clients, referral sources, and increasingly, the same problem: neither could grow past a certain size without a bigger back office, a deeper bench of recruiters, and enough scale to negotiate better insurance and payroll terms.

After a series of informal conversations over about a year, Tesfay and Biniam agreed in principle to combine the two agencies into a single company, with Tesfay's business acquiring Biniam's through a share purchase and Biniam staying on as an executive of the combined firm for a transition period. The deal, once the numbers were finalized, sat in the range of roughly $22 million, split between cash at closing and a portion held back and paid out over time. Treadstone Law was retained to represent Tesfay's company as the buyer, running due diligence on Biniam's business and drafting the purchase agreement.

What due diligence found

Due diligence in a business purchase means the buyer's lawyers and accountants systematically review the target company's contracts, financial records, employment agreements, licences and liabilities before the deal closes — the goal is to find problems while there is still time to price them into the deal or fix them, rather than discovering them after the buyer already owns the company.

Biniam's company was well run, but its employment records were kept informally, and the initial document list his office provided did not include a set of older employment contracts for senior staff. When Treadstone's review asked specifically for every written agreement with anyone earning above a set threshold or holding a management title, one contract surfaced that changed the shape of the deal: an agreement with Rejean, the company's operations manager, who had been with Biniam almost since the business started.

Rejean's contract, signed several years earlier when Biniam first expanded beyond a one-person operation, included a change-of-control clause — a provision that promises an employee a bonus if the company is sold or merged, usually because the owner wants to guarantee the person who actually runs daily operations has a reason to stay through a transaction rather than leave for a competitor the moment a sale is announced. Rejean's clause entitled him to a bonus equal to a set percentage of his base salary, payable on closing, if ownership of the company changed. Nobody on either side had mentioned it in the term sheet negotiations. Biniam had genuinely forgotten it existed; it predated his current bookkeeper and had never come up because the business had never before been sold.

Left undisclosed, the clause would have been Rejean's to enforce against the company the day the deal closed — meaning the combined company, now owned by Tesfay, would have been on the hook for a bonus nobody had priced into the purchase, at a moment when the last thing the new owner needed was a dispute with the manager whose knowledge of the operating contracts made the business worth buying in the first place.

What we did

1. Quantified the obligation precisely. Rejean's bonus worked out to roughly $210,000, calculated as the percentage set out in his contract applied to his current base salary. We confirmed the figure against payroll records so there was no ambiguity about the number either side was negotiating around.
2. Treated it as a purchase price issue, not a surprise to absorb. Rather than letting the obligation fall on the buyer by default, we raised it directly with Biniam's lawyer as a disclosed liability that needed to be accounted for in the deal — either as a reduction to the purchase price, a shared cost between the parties, or a specific line item funded at closing.
3. Negotiated a funding mechanism. The parties agreed the bonus would be paid out of the transaction proceeds at closing, deducted from the amount Biniam received as seller, since it was his company's pre-existing obligation to Rejean and not a new cost created by the merger. This kept the buyer's total outlay unchanged and put the cost where it belonged.
4. Built the disclosure into the purchase agreement. The agreement was amended to specifically identify Rejean's employment contract, the change-of-control provision, and the payment mechanism, with representations from Biniam confirming there were no other undisclosed employment obligations of the same kind. This closed the door on similar surprises turning up after closing.
5. Recommended a new agreement with Rejean going forward. Once the change-of-control bonus was resolved, we recommended Tesfay's company offer Rejean a fresh employment agreement as part of the combined business, with updated terms reflecting his expanded role — giving him a reason to stay invested in the merged company rather than treating the payout as an exit incentive.
6. Coordinated the timing with the rest of closing. The bonus payment, the purchase price adjustment and the new employment offer were all sequenced to happen at or immediately around closing, so Rejean received clarity about his position at the same moment the ownership change became public within the company.

The outcome

The deal closed on schedule, roughly four months after due diligence began, with the change-of-control bonus fully disclosed, funded out of Biniam's proceeds, and paid to Rejean at closing under the terms of his original contract. Because the obligation had been identified and dealt with before closing rather than after, there was no dispute, no delay, and no unpleasant conversation between the new owner and a manager she needed to keep.

Rejean signed a new employment agreement with the combined company within a week of closing and stayed on through the transition, giving Tesfay continuity in exactly the part of the business — daily scheduling and client relationships for the industrial staffing side — where she had the least first-hand experience. Biniam's net proceeds from the sale were reduced by the roughly $210,000 bonus payment, which he accepted without dispute once it was clear the obligation was his company's to begin with and had simply been overlooked, not manufactured by the buyer's lawyers to chip away at his price.

The wider lesson for Tesfay's company was about what due diligence is actually for. The healthcare staffing side of the business had no equivalent hidden obligations, but the exercise of asking specifically for every employment contract above a certain seniority — rather than accepting whatever document list the seller's office happened to produce — is what surfaced the one that mattered. A company being sold is not being dishonest when it misses something like this; institutional memory fades, and older contracts get buried under years of routine paperwork. The buyer's job, through its lawyers, is to ask the right questions anyway.

What you can learn from this