When to Tell Employees you are Selling the Business

10 Apr When to Tell Employees you are Selling the Business

Shoot The Moon

When to Tell Employees you are Selling the Business

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EPISODE 214. When do you tell your employees that you are selling your business? Mike Harvath and Matt Lockhart discuss the timing and strategy for informing employees about the sale of a business. They emphasize the importance of involving key stakeholders early, such as equity holders and finance leaders, to ensure alignment and confidentiality.

EPISODE TRANSCRIPT

Mike Harvath  00:07 

Hello and welcome to this week’s Shoot the Moon podcast, podcasting live and direct from revenue rocket world headquarters in Bloomington, Minnesota, as you know if you tune in regularly, or maybe even if you don’t tune in regular Ali Reverend rocket is a world premiere M&A and growth strategy advisory firm for IT services companies. With me today is my partner, Matt Lockhart, welcome Matt. What are we talking about today? 

Matt Lockhart  00:35 

Well, and welcome back, Mike. We’ve done a couple of these, and when you were touring around the world here in the past couple of weeks, so it’s great to have you back, but we are missing the third leg on our typical stool here. Our partner, Ryan Barnett is right about now, probably in a couple of feet of powder out in Colorado doing some spring skiing, so we’ll welcome him back next week, but we’ll make do here today, Mike and and you know what we’re talking about. It’s a super important topic for business owners who are thinking about and contemplating or in the process of selling their business. And the topic is, when do you tell your employees that you are selling the business? And I don’t think that there’s just one standard answer here. There’s a number of factors that need to be considered. But, you know, Mike, why don’t you get us going and just sort of set the stage for us as to, you know, what are some of the things that we’ve got to think about in preparation for communicating that that the business is going to be sold? 

Mike Harvath  01:57 

Yeah, for sure. Matt, you know, I think, as a business owner, especially if you’ve had a solid team and great team that’s helped you build a quality business, you want to keep them as looped into the any conversations or process that you’re having about you know the future of the business, give them much detail as you can, as soon as you can, and that’s sort of a natural desire and tendency, especially been working with these people for a while. The challenge with that is that you know getting them any deals done is hard, and you really want to make sure that you’re looping in your team on a need to know basis at a time that’s appropriate. And I can tell you that, you know, if you do that too soon, you run the risk of, you know, maybe even losing some of those long term employees and or, you know, putting them in a position to be stressful or stressing out about things that, you know maybe they don’t need to worry about. So, you know, this podcast, we want to impact that a little bit one more detail, and talk about, you know, when and who and how soon and all that. Yeah, I 

Matt Lockhart  03:18 

think that’s great. Mike. I mean, I think that there’s the if there’s going to be communication prior to the transaction, the sale being completed, thinking about, you know, the WHO in in that, and the how and the why, right and and if, after the agreement is is completed, and the deal has been closed, about closed upon, you know, how do you manage that communication? So in the context that it does make sense to, you know, start to bring people under the tent, right? And, you know, it’s the analogy we use if you’re in the tent and that a process is in in play, who and why you know are, who would be brought into the tent and and why would you be bringing, you know, certain key individuals into the Know that you are intending to sell the business? 

Mike Harvath  04:23 

Well, I think, first of all, you know, many of you run these businesses as a partnership, or, you know, with other equity holders, or at least minimum, key stakeholders. And it’s important to have the buy in of those key stakeholders early, even just around the concept of, hey, you’re thinking about doing something. I think you know, call your board or your executive team, your key key leaders in the business, probably need to know you’re thinking about doing this. And. Be bought into the process, right? And usually they have a key financial and strategic interest in that occurring. So, you know, that’s a fairly easy hurdle to jump over, right? I mean, if there are equity owners or key stakeholders that get a piece of a transaction, certainly you’re going to want to get their input, talk to them about timing. You know, they’re a key partner. I call them a partner level individual, and they’ll be able to support that journey, because, you know, to get through a process and be able to get through diligence, you’re going to need to likely have key members of your team in the know confidentially. Sometimes our clients have those partner sign NDAs to you know further fortify their desire to legally to keep things confidential and you know, not to leak it to the team. But I think that’s something that you know you want to have buy in with particularly finance keys, finance leadership. But I think more broadly, what’s important to know is that, you know, I we generally advise our clients to not advise the rest of their team until the deal is fully negotiated. Now, it might not be closed, but if there’s nothing left to negotiate, and let’s say you’re within a week before close, or so maybe two weeks, you know you want to have an all hands, internal meeting and support of maybe a meeting you’re going to have with your buyer to announce a deal, it’s appropriate to let people know it’s appropriate to manage the communication so they know what’s in it for them, why this is you made this decision, why it’s important consideration for them as staff and your your clients as well, and have a communication plan sort of fully baked ahead of time for how and who you’re going to tell inside the business and when, and likewise, how you’re going to communicate with your clients. It’s also an important consideration, 

Matt Lockhart  07:15 

yeah, for sure, and I think we can dig into a couple of those considerations as we go along. And you know one thing is, is we often talk about selling in or selling out, right? As an owner, if you’re selling in, you’re going to be sticking around, right? You’re going to have a role. You’re going to be engaged. You the your team members who have been working with you are going to continue to see you in some capacity, versus selling out. You know where, after a short transition you as the as the leader, as the owner of the business, is going to be walking away. And I think that that has an impact too, in those considerations, you know clearly, if you are going to be selling out and walking away, that can create at least the impression of more change a different, different leader altogether, right? And and so I think that that can play into that consideration as well. You raised up that the potential for employees having concerns, right? You know, when they hear the news, which to your wise advice, that’s why you don’t let them in too early, right? What? What are, what are some of the things that employees typically are concerned about when they hear that there could be a sale of the business and a new ownership group, or they may be joining a bigger business and so on and so forth. What are, what are some of the, you know, sort of key concerns that employees 

Mike Harvath  08:59 

have? Well, they certainly wonder, you know what, what’s in it for them, both good and bad, right? You know, is it going to impact their compensation? Will there where charter change inside the business, what sort of new requirements may be thrust upon them and the role, either in the same role or an expanded role, you know, does this buyer have a different sort of customer and employee care philosophy than what they’ve been working within up to this point? And what does that mean for them? I think it’s important to understand that in our industry, you know, employees have a lot of choices, right? And especially in, you know, North America, we have pretty darn low unemployment. And in some areas of tech and tech consulting and tech services, there’s negative unemployment. So, you know, there, there are choices. And so I think it’s critical to kind of walk them out the shoes of your employees when you’re talking. To them about, hey, you know, this is what this means for you, right? No, oftentimes, you know, if you’re being acquired by a larger company, or, let’s say you’re being sponsored by a sponsored company that has, you know, a financial sponsor, those acquisitions mean there’s new and, you know, kind of interesting opportunities that we presented for those employees. They may not think about that. I think, you know, a lot of people race to well, what, what could impact them negatively? But you know, may not focus on everything that could happen positively. And certainly, I think, you know, you’ve been getting to know your buyer, working closely with them for some period of time. You can work through diligence, and, you know, have a, probably a high degree of confidence that their customer care and employee care philosophy is a lot at a minimum, aligned, and certainly could enhance your own approach up to that point. So it’s about, you know, communication that at that juncture, like, you know, having a open dialog about, you know what this means, what you see, why you think it’s a good thing, you know what’s what’s kind of in it. For the those folks, you kind of gotta paint that picture, because I think in the absence of those facts and that conversation, you know, people kind of make up their own reality, right? And they might network and hear things on the street about certain buyers or things that may have happened that may or may not be factual, frankly, and and they’ll kind of make up their own reality, and sometimes that it has nothing to do with what you know is likely been planned for integration or for the future. So I think you know, being proactive and timing those communications right and help alleviating concerns or or fears by those employees about what will occur will be critically important. You know, in our business, it’s a people business, right? You can’t. You gotta understand our product walks out the door every day. I know you know that as an owner and an operator, but you know at the end of the day, you know, for a deal to really have meaningful value to a suitor, you know you have to be able to, you know, you, they have those folks have to really come along, 

Matt Lockhart  12:27 

yeah, and I think that you, you nailed it, Mike. I mean, they in, you know, for employees, I think first and foremost right is job security, right? Do I? Do I have a job right? And and, and thinking back to the timing of a of communication, you know, in an asset based, you know, agreement, purchase agreement, you know, all those employees are going to need to be rehired, right, and somanaging that communication appropriately is, is absolutely key. And then, to your point, benefits and compensation, what does that look like? What is the upside opportunities for those you know, those things, the culture right and values of of the organization that they’re going to be joining with? How does their how does that change and and then again, to your point, how do you not just alleviate concerns, but, you know, create a positive environment, right that, that people can see the the benefit right then, and the opportunity, the opportunity to grow and do more as Well, as you know, obviously, you know, potential compensation benefits. I think that it, it all, you know, Mike, it, it sort of it all boils down to, you know, thinking about this in the context of an overall communication plan, right, related to the sale. And, you know, sometimes we see that, that sellers just think, well, you know, that’s that’s going to be the job of the of the acquiring company, of the company that’s buying us, but it’s really not right. I mean, the sellers have a role in in in thinking about that communication plan and helping prepare, you know, the key messages, 

Mike Harvath  14:23 

yeah, for sure. I mean, I think there’s a right way and a wrong way to do that. And I think you know, certainly as you’re contemplating it, I would get input from your advisors, your M and A advisors, your legal kind of how you’re assembling your post merger integration plan, working with your buyer to make sure there’s alignment all the way around the communication plan, and putting enough time into that, in the messaging and the forum and the timing so that you can minimize any disruption. And I think. So, you know, making time to talk to people, your employees, individually, that have concerns. You know, oftentimes those concerns are can be alleviated just if you understand their perspective, right? Everyone has a different perspective. And frankly, when you make an announcement like this, which is a big announcement, they hear different things based on their perspective of their role and their time with the firm. And you know what they hope to be happening in the future. And you know it, it’s really, really important that you take the time to, not only you know, get that communication and what the plan is clearly communicated, but, but then to talk to people about what’s keeping them up at night, about this deal, and you know why they might have concerns that could, you know, be reasonable and founded in fact, and and kind of talk through that so that you can begin to help them understand that you know what, what the current reality is and not you know if they’ve made up their mind or made up a fact about a reality because they heard from someone or a friend who went through a similar situation, maybe didn’t have, or maybe had a wildly positive outcome or a wildly negative outcome, and and, you know, that’s formed their thinking. So I think, you know this old adage of walk them out the other person’s shoes, I think is super important in this communication plan, and then being available in the field individual concerns, because everyone is on a little bit of a different journey, right with your company and the time and role and experience that they might have. And I think as an owner who’s gonna help to facilitate a transition, even if you’re selling in, you really have to be sensitive to what people are saying and be listening so that you can help them through. 

Matt Lockhart  17:02 

Yeah, I think that’s great, Mike. And so one of the things to highlight is, as well, the communication plan, you know, may start before a sale with key employees, and then, you know, very shortly before the the close of a sale, more people and or the entire team might be brought in, or they may be communicated to right after the sale. And you know they’re talking about the reasons for the sale, the the impact to employees, positive impact and etc, etc, and then talking about the future opportunity for people. Well, oftentimes people will make a mistake to think that they can just say it once, right? And that’s not the case. So thinking about that follow up communication strategy is as critical as some of the initial communications that you’re going to have about the about the sale, and about the the next chapter. So I think that’s great. Well, that’s about it. So kind of in summary, right? It’s start to think as a as the owner of the business, and and, or if you’re a partnership who all may be brought into the tent earlier, rather than later, to assist and help and or if they’ve got sort of a stake in and they’re going to be critical to the deal getting done, as well as the the early success of the business, also very important to manage that communication very tightly and very confidentially, because you don’t want the greater organization to know outside of of your plan and your communication plan to as you say, really put yourselves in The in the shoes of your team members to think about what their concerns could be and have the appropriate messaging and answers in place, as well as follow up communication and individual communication channels for people to you know, express their concerns and or just talk about the situations that you’ve got to have good follow up communication on an ongoing basis as part of your communication plan, and that both the buyers and the sellers are participating in the communication To alleviate concerns and to get people fired up right about the opportunity, the one plus one equals four, five or six, right opportunity in bringing two firms together. So think that’s kind of the the keys there. It’s super important. It’s often overlooked. Which is, we’ve had the opportunity to help a couple of people sell their businesses here recently, in the past, you know, couple of weeks and and so it was on our mind because we helped them through this and and recognize just how important it was. Mike, what I miss? Or what do you think? 

Mike Harvath  20:21 

Think you got it all, Matt, I think it’s critical comedic, just to take away as communication is critical, timing is critical. Get input on that, formulate a strong plan and move forward with your deal, so that we’ll tie a ribbon on it for this week’s Shoot the Moon podcast. Hope you can tune in next week, we’re back with lively topics around M&A and growing your business and the IT services world with that. Make it a great week. Take care. Bye.