Thinking. About Business.
Communicate Your Exit
Minimize succession’s impact upon a company’s culture
By David Chopko
Okay, you’re ready to sell your business and retire. It’s been 3 years since you discussed it with your spouse and kicked off the
active planning. A few employees know all about it, but since you’ve talked for so long, well, they’re no longer believers. But you
are sincere, ready, and it’s time. Your first impulse was to call a big staff meeting, but no, you hesitate, worried about instant leaks
to all the suppliers and customers. At some point, of course, you have to tell them, but when?
When it comes to succession—When to tell? How to tell? What to tell? Whom to tell? Sharing the exit plan demands
strategic thought from every owner. And these questions can’t be willed away by ignoring them. In order to
mange the process of disseminating information, one proven system is to separate your universe into manageable
groups. For the typical business owner, we find there are three major employee groups: your key managers, middle
management, and the rest of your employees.
Whether you are comfortable with it or not, your key employees need to know about your plans from day one. During the process
of preparing the documentation for the business’s sale, they will be working with the transition team, especially your investment
banker. After you find a serious buyer or buyers, as part of the due diligence process, expect that all of your key employees will
be interviewed. Potential buyers want to know if these employees will stay, if they are happy, if they’ll expect more pay, and if
there are any skeletons in the closet that would cause the buyer to decrease the offering price or walk from the deal. It is obvious
that you want these employees to be happy and supportive of your sale. Whom to tell? Ask your investment bankers for advice.
They should be able to tell you which employees are most likely to be interviewed by potential suitors.
Be aware that it is human nature to want to be part of the inner circle or to feel slighted if you are not part of this circle. So if
you think your employees can be trusted to keep matters confidential, it is better to have a slightly larger group than a smaller
group. The last thing you want is for a potential buyer to press to speak to an employee because he believes that employee is
critical to your operation, but you have failed to share your plans with this same employee. If this employee is bitter about not
being originally included in the inner circle, he might offer a negative picture of the business. By the way, when you are listing
key employees, don’t forget your key outside sales associates. Members of this group by their very nature are independent
and can easily transfer their skills and book of customers to a competitor.
Middle management is the second employee group. These employees make the business run. Typically they are not your longterm strategic thinkers, but they are the day-to-day doers. In most cases, they are the business. You know this, as does the potential
buyer. Although seemingly unfair, we advise not telling this group until a short time before the sale. You do not want any of these
key employees job hunting for fear that they’ll lose their jobs after the sale. Because you want all of your middle managers to
stay, or at least you want the new owner to be able to decide who to keep, you need to be very sensitive about how news of
the pending sale is presented to this group. Recognize that no matter how hard you try, there will be some anxious employees
and others who will be upset about not being included in the inner circle of key employees.
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Thinking. About Business.
The final group is the rest of your employees. When you share the news with them, you’ll see a wide range of emotions.
Depending on the size of this group and whether they all work at the same location, you may want to hire an employee specialist
to determine the best way to share the news.
Once you have separated your employees into the various groups, when should you tell each group? In this area, I would lean
heavily on your investment banker for guidance. First, you may have decided that it is time to sell, but in today’s market, there
might not be any buyers for your company. When I say that there aren’t any buyers, I firmly believe everything is saleable at
some price. However, your business might not now be saleable at a price that will support your retirement needs. After you
get the “go” from your investment banker, I would immediately tell the key employees. As to the timing for telling the other
two groups, again this will be highly dependent upon the deal’s progress. We recently had a client who courted buyers for over
6 months and then at the eleventh hour decided he didn’t want to sell. Fortunately, this all occurred behind the scenes, so 95
percent of his employees never got worried about losing, or lost focus on, their jobs.
It is a cliché but true. Your employees are your most valuable assets. Just as they are invaluable when you’re running the business,
they’re critical to the buyer. How you treat these employees could mean the difference between getting a top price for your
company or having to sell at a discount. Therefore, if you’re thinking about selling your business, knowing who to tell and when
to tell are important decisions.
David Chopko ([email protected]) is vice president at S.C. Blodgett & Co. Inc., a regional investment banking firm specializing in
assisting small to mid-market companies and providing financial advisory services to clients in the areas of mergers and acquisitions, corporate
finance, and business strategy.
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