Deal Communication: Ten Lessons Learned
By Tom Zucker,
In business, as in life, communication can be everything. During the M&A transaction process this statement is even more evident and true. The intensity of emotions that a business owner has as he or she begins to think about selling “their baby” is very high. The Key managers anxiously observe private conversations and unusual requests while thinking to themselves about the security of their job. The advisors strive to protect and advise long-time clients but also are motivated to preserve their future business. It is in this environment that a skilled investment banker works, and why deal communications are so critical to a successful transaction.
From our decades of experience of working with private and publicly owned business owners, we offer the following, “Top Ten,” observations regarding communications during M&A transactions:
- Protecting Confidentiality: Preservation of confidentiality about your intentions to sell your business is important in maintaining performance level of your business. In smaller privately held companies a disruption or loss of customers, vendors, or key employees can be devastating to the business. The following are just a few of the common means used by advisors to preserve the confidentiality of a deal; disguise the selling company’s identity by using project names instead of company names, executed non-disclosure agreements for all buyers, implement tight timelines for buyer notifications and analysis, and limit the number of internal and external people aware of the transaction.
- Communicating with Management: Effective communication to your key management personnel is one of the owner’s most important activities during the selling process. This group is critical to the ongoing success of the business, and is very important to potential buyers. We have found that key senior leadership such as a general manager, CFO, and others should be made aware of your intentions to sell the business early in the process. Their involvement will enable preparations to go more smoothly, and reduce the risk of disrupting delicate industry relationships. Often “stay bonuses”, employment agreements or other incentives are helpful to key management to ensure that they do not feel at risk of losing the security of their job and importance.
- Communicating with Employees: Employees are often notified much later in the deal process than key management. The timing of communications to employees does not reflect an owner’s respect for their hard work and dedication, but rather a calculated business decision. Notifying employees at the onset of an owners intentions to sell can increase anxiety and heighten the risk of employees leaving, work productivity decreasing and employee morale deteriorating from speculation about a new owner. Typically employees are not notified until after a letter of intent is signed or until the actual time of deal closing where the buyer can be introduced and reassure employees.
- Communication with Spouse and Family: In privately-held businesses, family members are often actively engaged in operations, intricately involved in the business’ economic affairs, or have certain rights to sales proceeds. The nature of family affairs in business is such that we typically suggest sellers speak to family members often and frequently, particularly those who are stakeholders. By keeping family members apprised of a sale action that affects them, sellers avoid or minimize emotional changes of heart that can compromise closing or complicate and delay the deal.
- Telling Your Customers: Communications with customers is very important and requires much thought and deliberation. Buyers will insist on speaking or meeting with customers as soon as possible, but we often advise owners to delay these introductions until much closer to the closing date. Typically these conversations best occur after the sale documents have been drafted, relationships have been solidified, and financing is secured. Your investment banker’s communication with buyers and guidance on how best to communicate with your customers can be very important to the success of your transaction.
- Telling Your Suppliers: As with customers, we believe that notifying vendors and suppliers later in the process is vitally important. After the sale transaction is complete, there is ample time to notify the company’s suppliers. The benefits are that by then you know who the buyer is so you eliminate idle speculation among the suppliers, you maintain of confidentiality and you’re able to introduce the buyer to the suppliers, providing them with a sense of certainty going forward with the company.
- Communications with Advisors: It is important to have your key business advisors involved early in the sale process. Your lawyer, accountant, banker, investment advisor, and possibly other long-term key advisors should be told of your decision to sell the business (Clearly, it is necessary to assess the risks and benefits of notifying each advisor based on their role, experience and ability to maintain confidentiality). A good investment banker will be able to bring together these advisors’ experience and insight to maximize the shareholder value while minimizing the risks involved with a transaction.
- Responding; Less is More: A buyer will ask many questions of the investment banker, key managers and owners. We have found that honesty and direct responses to their questions are very important. However, we also know that often answering only the question being asked is equally as important. As Sergeant Joe Friday of Dragnet used to say, “Just the facts”. Often speaking in an unclear and rambling manner will cause a buyer to misinterpret the message and expose other matters that were not pertinent to the question being asked. Hence, we advise our clients that, in general, “Less is More”.
- Maintaining Control: The ability to control the timing of your communications is very important to a successful ownership transition, and the execution of a disciplined sales process will enable an owner to control the message and its timing. An owner does not want to have to contend with upset employees because of the untimely news that the company is for sale. Rather, with proper precautions this issue can be minimized. Working with a skilled investment banker and tight control of communication will help an owner to maintain control throughout the sales process.
- Winning Negotiations: The sales process involves much negotiation with buyers and other stakeholders throughout the process. It is important that an owner win the critical negotiating points. The involvement of investment bankers, lawyers and accountants to assist in the negotiations provides great leverage. The ability to avoid direct interaction with the other side’s principal decision-maker will allow for a more calculated and thoughtful response to questions and eliminate any emotional reactions. Additionally, the ability for difficult negotiations to be handled by your advisors provides for an ideal situation to play “good cop, bad cop”. We often advise selling owners that the terms of the deal are often more important than the buyer’s price.
It is critical that well thought out, strategic communication occurs throughout the business sale transaction process. Good communication means not over-communicating, yet keeping the transaction’s emotional balance in check by revealing information to those who need to know at the right time for the right reason. By controlling the flow of information you can help ensure that the transaction won’t go astray and that a successful outcome will occur.