Communicate the blueprint
Even after Karlin has done all of his research and made sure that there’s a cultural fit, he then outlines all of the post-acquisition details about how he wants to improve the business before the deal is done.
“When you do your due diligence, a big part of that is developing a blueprint for what you’re going to do after the close, and it’s a great idea to do that in advance of the close so that everyone is on board … [and] everyone already knows what the plan is going forward so there’s no big surprises,” he says. “The worst thing you can do is go blasting in there after the close and implement all kinds of changes, which people don’t like. It’s guaranteed, of course, to hurt morale and antagonize people. It’s much better to be straightforward, upfront, open, honest in advance. … If they’re discussed in advance and there’s an openness about it, people almost always buy in.”
He sits down with the founder or owner and talks about the program’s strengths, weaknesses and how he’s going to work with the acquired party to improve the program.
“No matter how confident either party is that it’s going to work out fine, you want to have a very detailed discussion and talk about expectations post-close,” he says. “That’s the best thing you can do. And do not rationalize to yourself that it’s going to work out OK.”
In addition to detailing the changes to the company after the acquisition, you also want to do the same for the owner or leader’s role, too.
“Go through all expectations that you have for the founder after the d
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l is done, and if you’re completely straightforward about that, a couple things will happen, and you’ll learn a great deal from their reaction,” he says. “They will learn a great deal from you because they’re now facing reality about what this thing actually means.”
The reaction can be mixed, but it will help you determine the best way forward. Sometimes the founder will decide he or she doesn’t want to work for a large organization so the founder decides that he will help you with the transition and then he’s done. Sometimes the founder gets nervous and questions whether he or she should do the deal because that person doesn’t want to lose control.
“They might just kill the deal,” he says. “You take some chance that you won’t get to buy what your heart is set on, but you’re much better off that way because if you go forward with the deal, things will go south, you’ll have a difficult time because that founder isn’t ready to make the change.”
Lastly, assuming the founder or owner understands everything and wants to stay on board, you also have to protect yourself and your larger company.
“It’s also important to have a mechanism agreed upon regarding the founder’s role and what would happen if things don’t work out,” Karlin says. “For example, if things don’t work out, you ultimately have to have the right to separate from the founder. If the founder doesn’t work out, you can’t have a situation where the founder has a right to stay on indefinitely or for an infinite period of time, so there has to be a mechanism whereby you have the right to separate from the founder.”
