When a company is sold, the parties involved feel exultation and relief. After all, the sellers have monetized their value while the buyer has acquired an enterprise that should create future value. Time to celebrate, right? Wrong! How both sides conduct themselves following closing will have great impact on whether the transaction is ultimately successful.
Employees are the immediate concern. Rather than sharing the seller’s elation, they will likely be worried (or outright petrified) by the sale. “What happens to us now?” So, it is critical to reassure them, to the extent possible, that their jobs, compensation, retirement plan, health insurance, accrued vacation, etc. will remain in place. Immediately convene a meeting (or several) to introduce the buyer to the employees. Seller executives who are staying should be present, making clear that the employees are valued and need not start job hunting.
Customers are the next concern. They need to know the buyer intends for the company to continue serving them well. (Sometimes this communication happens one-on-one in the week before closing, which customers greatly appreciate). Remember, the company’s competitors will pounce like wolves, suggesting that the new owner will not deliver the same service and support. Only proactive assurances from both the company and buyer will allay the customers’ concerns. Then, be absolutely certain that product deliveries and ongoing interactions continue on time with the highest quality.
I worked on a deal in which the buyer and seller deliberately did not notify customers of the closing. This was because the company’s contracts gave customers the right to renegotiate upon a “change of control.” Since the backlog would take six months to ship, no announcement was made until the pre-existing orders had been processed and paid for. Meanwhile, all new orders were booked under the new legal entity’s new legal name. (Though this solved the company’s contract renegotiation problem, it unfortunately also prevented my firm from announcing the transaction and our role in it).
Creditors are a third concern. Fearing their invoices won’t be paid, some will push for COD terms. To forestall this, the company’s CFO should immediately reach out to suppliers’ sales and accounts payable personnel to explain that existing payment terms and relationships will continue in place, and ensure that all bills are paid on time. (This is not the moment for payment delays caused by computer glitches or bank bureaucracy).
Myriad other parties must also be promptly notified as they can create problems if ignored. These include government entities, tax authorities, regulatory bodies, trade associations, service providers of every type, etc. It costs nothing to “over notify,” but could end up being expensive to “under notify.”
Most importantly, be there! This is the time for the company’s management, as well as the buyer’s leadership, to be “on site and visible.” As they taught me in the Boy Scouts, “a timely bucket of water on a campfire does the same job as 100 smokejumpers fighting a forest fire.” By being present, the buyer, company and management will be able to “put out the small fires before they grow into major conflagrations.” Then, once everything is smoothly transitioned, crack open the champagne! ●
Mark A. Filippell is an M&A professional
