Once upon a time, I helped a good friend through a transaction to sell his closely held public company to a larger S&P 500 size public company. We involved the traditional group of employees you would expect: CFO, COO, and CMO. About two-thirds of the way through the process, it became clear that the CFO would not have an ongoing role after the transaction. Despite the fact that he was up for a sizable bonus to get the transaction done, he put his own interests ahead of the company and tried to scuttle the deal. He then put together an alternative bidder group to try and buy the company. Totally distracted and at odds with his future, he both overtly and indirectly caused major problems. In the end, he held the transaction up by at least six months, added multiple millions in legal fees and other expenses, and was subsequently terminated and received nothing for his efforts. It was a miracle the deal ever got done!
So here’s the lesson: Once you’ve decided to go through the process of bringing your company to market, it’s common to wonder who, if anyone, should know within the business. How you handle this communication challenge is critically important because if done incorrectly, it can create massive problems and wreck value. It’s critical that anyone on your team who will be involved in the process in any way has a stake in the outcome. It doesn’t have to be a major stake, but it’s a terrible idea to go to your senior team and say, “Hey, we’re going to take this asset that we’ve all built together to market and sell it. You’re going to help me with the process, and I’m going to make a bunch of money and not share any of that with you.” Even if you’re not comfortable committing to a dollar amount, it’s perfectly acceptable just to let the small group know that they’ll be taken care of to some extent.
So how many people should you tell? The short answer is as few as absolutely necessary. When you go to market and you’re working with your exit team and interacting with multiple buyers, it is a huge distraction. Your senior team needs to pick up the slack created by your lack of focus on the business and ensure that productivity and profitability don’t fall off. The process of selling your business takes longer than many people expect. That last thing you want is to get deep into negotiations and have the buyer find out that your numbers declined the last quarter. That decrease can dramatically affect your valuation as well as the confidence the buyer has going forward. It can even, in some cases, kill a deal. Chances are it was due to the fact that your senior team didn’t have their collective eye on the ball. That buyer will have zero pity for you and certainly won’t accept the excuse that the only reason for the dip was because of the pending sale.
It’s also important to acknowledge the fact that human beings are wired to jump to conclusions. So, when you say that you’re going to sell the company, your employees immediately assume that means they’ll lose their jobs. They have little faith that the new buyers are going to want to retain them, or they may be concerned about whether their current position will still exist when ownership changes hands. Often times, you’ll start to lose some of your “A” players while you’re in the process simply because they’re afraid. If the buyer gets wind of the mass exodus of critical talent, that can blow up a deal. You also can, unfortunately, give employees a little too much leverage to put their interests ahead of yours, whether overtly or subconsciously.
Outside of work, I don’t recommend telling your friends or your extended family. You probably need to tell your spouse or partner because it’s an emotional process, and they’ll likely know that something is weighing on you. But you want to keep a possible sale as confidential as possible because there’s a good chance you go through the process but decide not to exit for one of several possible reasons.
Treat the sale of your company as a highly confidential, delicate negotiation that could be impacted by many different issues and do all you can to minimize the likelihood of those issues — employees and confidentiality being huge ones!
If you want to learn more about getting ready to exit, please visit align5.com.