Most sellers think total confidentiality is critical. That strategy may be flawed.
If a company dominates its market and has good employee relations, then a strategy for strict confidentiality may not be in the seller’s best interest. In our firm’s 18 years of experience, market dominant companies have achieved their highest value by enlisting the advance support of front line managers and then publicly announcing their intentions.
Stated differently, in our firm’s experience, those companies with the greatest post merger/acquisition success publicly announced their selling intentions in advance.
Management and employees appreciate being informed, and then having an influence on their company’s pending change. Management and employees appreciate being part of the buyer selection team. It is powerful when a buyer visits the company and everyone knows the purpose of the buyer’s visit.
Sellers are always concerned, “will the buyer take care of my employees?” Buyers are always concerned, “will management and all employees remain?”
Some sellers are intimidated to meet with buyers. When management becomes involved in the buyer selection process, a new dynamic emerges. Buyers are forced to qualify themselves as suitors. Management takes an active roll in the discussions, which is appreciated by the buyer. The seller experiences less anxiety because he or she is relieved of the one-on-one perceived pressure. It is powerful when an informed management team meets with a buyer:
- Instead of being skeptical of a seller’s private decision, management is supportive, informed, prepared, and motivated.
- Management becomes involved in the selling process.
- Management provides valuable input in the selection process.
Our firm’s officers coach management not only to sell the company and themselves, but also to politely ask, “What do you (the buyer) bring to our company?” and “How are we a good fit for your plan?” and “How are you good for us?”. Challenge the buyer. Turn the tables and keep control. Make the buyer articulate why he is the best among the selected suitors. Make him sell his money and his company to you.
This strategy is effective only when the selling company is strong in its market and is ready to proceed in earnest with the selling process. It takes a confident seller to announce intentions in advance.
Some sellers correctly worry that their customers may leave after an announcement. They fear the relationship they have built with the company’s personnel will end after a sale. Our experience is that customers appreciate knowing that management will own part of the ongoing business. If pertinent, they appreciate knowing that the seller intends to remain during a transition period. If changes are forthcoming, they will be for the customer’s benefit. There will be both increased resources and an emphasis on growth Ð both of which benefit customers.
Generally, sellers are asked to remain for a negotiated transition period. During that time the seller together with management and the buyer visit customers. Together as a mutually selected team, each customer is told with enthusiasm that the company will remain basically unchanged with the same management, but there will be growth improvements. The new owners like what they see and bring new enhancement resources.
Vendors simply want to sell more of their products and to be paid. Unless a company is distressed, vendors will generally cooperate and assist in the selling process if there is a reasonable prospect to sell more of their products. In the due diligence process vendors may support the selling process with their positive statements regarding the company’s management, payment history, market standing, future prospects & etc.
Lets remember, the goal of the transaction and this strategy is both to maximize shareholder value and ensure a smooth transition. It is easy to see that these goals benefit the seller, buyer, management, employees, vendors, and the community. With announced intentions and cooperation from management, then the seller negotiates from a position of strength.
Bold strategy? Perhaps. But it works.
Analytical feedback from management is valuable. Many eyes looking at a buy-out partner are better than just two eyes.
In our experience, when management is informed and becomes involved in the selling process, then there is a much higher probability of gaining maximum value for the company. The buyer perceives less risk because management has helped to choose the buyer; and thus, both management and the employees are more likely to stay with the company and continue it’s positive trends.
Continuing positive trends are especially critical when part of the seller’s compensation is tied to the future performance of the company.
New Age thinking? Perhaps it is just timely. It is good business to allow management to have input into the destiny of their company and their individual careers. Employees throughout the organization frequently share similar positive attitudes because their managers are informed, involved and supportive of the selection process. Positive attitudes are contagious when management is informed and supportive of pending change.
Charles V. Lemmon is President of C.V. Lemmon & Co., Inc., a private M&A advisory firm in Dallas, Texas. Charles Lemmon can be contacted by telephone @ (214) 207-9694 or by e-mail at firstname.lastname@example.org.