As a business owner, deciding to sell your company is a huge feat in and of itself. But making that decision is just the first step in what can be a long and thorny process.
As the transaction process approaches, many business owners question how and when to communicate the news to employees. We talked to Kenneth Greenberg, Senior Managing Director at consulting firm Auctus Search Partners, to get his advice on the topic.
Develop a clear plan for change management.
As an organizational consultant, Greenberg helps buyers and sellers think about how to roll out large-scale changes so that people are most likely to accept and adopt them readily.
“There has to be a plan. You don’t walk out on the plant floor and say, ‘We sold the company.’ That’s a huge mistake. The buyer should take responsibility in creating a plan to socialize all the changes around the sale too,” says Greenberg.
There are numerous change management plans to consider. Greenberg points to ADKAR as one prominent example; the program is broadly based around the idea that “it is the accumulation of individual change that leads to organizational change.” Another popular program, Leading Through Transitions, looks beyond “the structural side of change” to “the human side of change: grieving, letting go, building hope, and learning.”
Regardless of which change management plan you implement, performing assessments on all your employees should be a part of the process, says Greenberg. “This allows you to see who is a likely advocate (people who are going to be out there telling your story and socializing it) versus an antibody (people who will likely reject the change). A smooth change depends on knowing who might get stuck and where.”
Bring a core group in early.
“From my perspective, there’s always going to be a group who should know about the sale sooner rather than later,” says Greenberg. The members of that group will vary depending on the size of the company, its executive team, the employee base, and other factors. Regardless of its size, “this group needs to be aware of the transaction because they’re going to be involved in management meetings or helping to prepare due diligence documents.”
But it isn’t just about logistics, Greenberg emphasizes. It’s also important that these key employees feel emotionally and economically invested in the sale and understand the vision for the company’s future. “In the best of all worlds, this team would be helping to construct the change management program, and advocating for the idea that the vision of the company post-acquisition is greater than before.”
Avoid socializing the news too early.
Be wary of involving the whole team in the decision. A sale process can result in a wide variety of outcomes — the deal may fall apart, you may decide to embark on a strategic partnership or minority investment, the buyer may structure an earnout that significantly changes the terms of the deal, or you may choose to move forward with a different buyer.
Even if a deal does close, due diligence can take months. Sharing news of a potential sale with everyone, before there’s a clear sense of the outcome, can distract employees, leading to drops in performance that may end up impacting the final terms.
Think through potential roadblocks to employee buy-in.
Depending on the acquirer’s plans post-sale, the process of sharing the news can be more or less complicated. For example, “if you’re selling to a strategic, they’re going to be eliminating lots of overhead. That’s a whole different ballgame,” says Greenberg. In this case, it’s likely “the roles and responsibilities of senior managements might be impacted. If they think they’re going to be redundant post-acquisition, they may become very resistant to participate. You don’t want them to feel like they’re digging their own grave.”
The possibility of major layoffs isn’t unique to strategic acquirers. If eliminating redundancies is part of the integration plan, one strategy is to “give everyone a shot” to make their case to the buyer about why they deserve to stay post-acquisition. But, cautions Greenberg, “it’s just not possible for some roles to stay in certain cases. For example, in strategic acquisitions, you can’t have two CFOs, two heads of HR.” In these cases, it’s important to design your communication plan accordingly, with the understanding that the people in these soon-to-be eliminated roles will likely not be the best advocates for the sale moving forward.
Don’t rely on shock and awe.
“Shock and awe is not the way to change your culture. Even if you don’t change the name of the business, it becomes a new organization when you change control. Whether it’s a strategic or financial buyer, there’s going to be a new culture layered over that’s different from the culture employees are used to, and you’ve got to have a plan to manage this change. It takes advance preparation to increase the probability you’re going to have the outcome you want — and reduce the chance of having your employee base rebel against the change.”
“The minute you sign an LOI, parallel to negotiating the purchase agreement, there should be a team in place to own mapping out the change management plan to foster adoption, acceptance, and enthusiasm for the new regime and culture,” says Greenberg.