While [you're consumed with the tasks involved with the sale of your company], you can't lose sight of your day-to-day business. You need to continue to communicate carefully with managers, employees and customers as the deal progresses. But the timing of this communication can make or break the deal, so proceed with caution. Mishandling communications can create uncertainty among employees and defections by managers, and damage relationships with key customers, all of which can have a detrimental impact on the business or even undermine the deal. Aside from the death of its founder, probably the hardest transition to make in the life of a business is the sale of the company.
Go to Managers First
The best thing to do in my judgment is to tell your senior-most people first, as soon as you're fairly sure you wish to sell the business and even before you've started looking for buyers or lining up members of the team. They need to be on board and know what's going on. Unless the business is a one-person show, you have to consider top managers as part of the team that will be involved in selling the business with you. But don't sit down with managers until you know the answers to two key questions:
1. What's in it for them?
2. Can they compete to buy the company?
On the first question, I'm a big proponent of offering a sale or "stay" bonus for your senior managers. You'll need them on your team to get a sale done and will want them to be as enthusiastic as possible. Carve off a percentage of the proceeds in a dollar amount that is meaningful to each key player and tell them they will get it on sale. This will keep them engaged and motivated, as well as compensate them for all the extra hassle involved in having potential buyers poking around the business. It will also encourage them to stick around if they decide that your exit from the business is a sign that they should get their own resumes out. Departures of key personnel can be damaging to a deal. So a stay bonus may be some of the best money you can spend.
As to whether you want to give managers a shot at buying the company in the process, that's not an easy call. It can make sense to allow it, but realize that in a certain sense, they'll then become a competitor in the bidding. This can lead to conflicts with outside buyers. If you believe the sale is likely to go to a strategic buyer, there is little point in having managers distracted with mounting their own bid. If it is likely to go to a private equity firm, your managers will be included in the process in any case, and you can encourage them to bid. Private equity firms usually will include them in the deal as the next tier of leadership to keep them motivated after the sale.
What to Tell Other Employees
How much you tell other employees and customers depends very much on the nature of your culture and your business. If you decide to have complete transparency, be prepared for the fact that employees may react to every hiccup in the process (and there will be many) and may have strong opinions about potential buyers. This can make the process more difficult, and employees could sabotage your plans. Think about the downsides of disclosure. What would happen if employees know about a potential sale and it falls through? What would happen to the business if the deal process drags on for months and months? Will employees be able to cope with a long period of uncertainty?
This is why owners often choose to treat deals as covert operations until they are able to announce them to employees, customers, suppliers, and the world. Unless the company has publicly put itself up on the auction block, an announcement that a deal is in the works will just unsettle the organization. Employees will either go into a holding pattern, waiting to see what happens, or they will preemptively jump ship. Customers will worry about signing contracts or will put off purchases to see what happens. It is best not to disclose what is in the works until the deal is firmly agreed upon and you can clearly see the finish line for completing it.
A deal is pretty easy to keep quiet when it is just a few small discussions over lunch or dinner. But once the plan starts to unfold, it takes a little more ingenuity. Managers use the following approaches:
Craft a cover story. Any employee with a pulse will know something is up when all these suits show up in the business at once. The e-mails and the rumors will fly. You can't ignore them, but you can explain them. Management usually creates a cover story. As noted earlier, the most common story is that the company is working on getting some new financing, a fresh infusion of capital to drive growth.
Customers and suppliers also may get nervous about dealing with the company. In particular, when the buyer does customer reference checks, it is likely to arouse suspicion. These customer calls are usually done by an outside consultant under the guise of a customer satisfaction survey. While this is useful information to buyers--who, after all, are interested in knowing how customers feel about the company--it just doesn't explain to customers why the company is suddenly interested in customer satisfaction. Even with the cover story, customers might be suspicious about such moves. Does the firm have customer problems? Is something else afoot? That is why these external reference checks should be done as close as possible to the consummation of the deal.
Set up the war room. To keep the diligence process a secret, you need to contain it. As discussed above, companies usually set up a war room at a hotel, an offsite office or a hidden conference room, where potential buyers can go over company information without raising eyebrows.
Invite in a few insiders. In addition to top managers, a small group of insiders from the finance department will need to be involved in pulling together the necessary information to sell the business. While all the troops may not know the details of the operation, you will need a few insiders who are not partners in the deal. Usually these added insiders sign nondisclosure agreements, and so they know that if they talk about the deal, they are history. (On one management buyout, a tight-lipped finance person spent so many late nights at the office that his wife suspected him of having an affair. Because of his nondisclosure agreement, he couldn't allay her fears until after the deal was concluded.)
Save sensitive information for last. As in any situation in which the company is disclosing very sensitive information, save the most sensitive stuff for last. As noted above, the customer calls should be held until late in the process because they arouse suspicion. Don't reveal strategic pricing information until everything else is in place.
Be prepared for the leak. Despite your best efforts, it's still possible that there will be a leak and that employees and customers will learn about the deal. All you can do about this is to make plans to address leaks as they occur. Most important, be prepared for your employee communications by writing an internal memo before the news breaks. Also be prepared with fact sheets on the deal and key talking points, so your employees, customers, and suppliers understand the rationale for the transaction and its inherent selling points. In the best of all worlds, you won't need these documents until you are ready to break the news. But if there is a leak, you will be able to move quickly and coherently. Many missteps are made because of hastily assembled communications or long delays that create anxiety and uncertainty among employees and customers.
Talking to Customers
When do you talk to customers? Customers will always be skittish about change. The traditional answer is to wait until you know you have a deal with the buyer. Then you can arrange a face-to-face meeting with key customers to introduce the buyer and provide the comfort, continuity, and confidence in the financial strength of the business. You'll also be able to tell customers about key managers who will continue with the business and your own role in the months or years after the sale.
If you do have concerns about a large customer reacting badly to a sale, you may want to go to them in advance to solicit their buy-in. This can be tricky. You have to think through how you will respond if they say "We hate that idea!" It's all a judgment call, but in general it is best to go to them as late as possible, when the deal is done. As with managers, make sure you can tell them what is good for them in the sale. They'll be a lot happier if the situation has some upside.
Also, as a side note, be aware that once your competitors get wind of the sale, they'll do all they can to use the sale of the company against you (another reason to restrict news to a small group of insiders). They will be the first to spread the rumor that the sale is a sign that "the company is falling apart." They will spread various tales about how the company will be way overleveraged after the deal, that service will suffer and, what's more, that the sky is falling. If they can, they will present the sale as a fire sale and a sign of desperation, and the new owners as jackals. Do not be surprised when this happens. It is just competitive nature. But be prepared. And remember: Loose lips sink ships.
Most of the time, the signing of the purchase agreement is the point at which the company needs to communicate to customers, suppliers, employees, and the world. Even though the bank agreements will not be finalized at that time, there are rarely problems in translating credit agreements into final covenants. (If you anticipate problems here, you might want to wait until the wires have actually changed hands to make the announcement, but this would give employees and customers a few more weeks of nervous anticipation.) By the time the purchase agreement is nailed down, almost everyone knows something is up, and what they imagine may be pretty bleak.
Companies that aren't concerned about this kind of turmoil inside and outside the organization sometimes choose to announce that a division of the company is up for sale before they have any agreement or even buyers. The announcement itself is sometimes used to flush out potential buyers and get a bidding war started. But it is a risky strategy, given the potential reactions of customers, employees, and competitors, which may not be easy to anticipate.
Sell Your Business Your Way Â© 2006 Rick Rickertsen. Published by AMACOM Books,a division of The American Management Association, 1601 Broadway, New York, NY 10019.All rights reserved.