I started and grew a technology company in the late 1990s, and sold it after being approached by a larger, public company. From letter of intent to closing it took about six months and during that time I let the employees know what was happening. Would I do that again? No, I wouldn’t, and I recommend to my clients now that they think carefully before letting their employees know.
Why? One of my employees said it best. After the sale, she admitted that she had had her resume on the street before the deal had closed and was looking for another job. She said she felt like she could no longer completely trust me to keep her safe, because even though I was staying around I would no longer be fully in control. Fear, uncertainty and doubt can and did spread through the company, and six months is a very long time for employees to wait for something. Heck, it was a long time for me. She said it was a big relief after the deal closed to finally meet more people from the other company, all of them real human beings, and find out they weren’t ruthless managers out to cut expenses at all costs. I’m certain that not all my employees became overly anxious like this one, but there are always those employees that like to worry – you know the type. In addition, the fact is that often someone does lose a job in an acquisition, whether because of redundancy (e.g. accounting or human resources) or because it’s a good excuse to trim back a little.
Another issue is that you don’t really know if a deal will close until it is closed. Every business intermediary that has been around a while has experienced this fact first hand. It may be a financing issue, it may be an illness or it may be any number of reasons why a deal may not close. So disclosing a sale to employees can cause a lot of fear and anguish for no reason, and can even damage the company if the word gets out to customers or competitors.
It can be tough to keep the secret, and it can take some creative story telling. I don’t recommend lying, but sometimes it takes some thought on how to explain some of the activities without lying. For example, if asked you can say you are exploring a strategic relationship with another company. After all, an acquisition is a strategic relationship.
You also need to be prepared to have your cover blown. Once we had a deal but were having trouble getting the buyer financing and we and approached the current business owner’s bank to get funding. The owner’s bank representative found out from the bank, walked into the owner’s business and said, “Hey Bob, I hear you are selling!” In that case, only one other person heard so Bob pulled her aside and explained the deal wasn’t done, she had a job if it did sell, etc. etc. Then he implored her to help keep it a secret for a while longer until funding was lined up, then he announced it to the company about two weeks before close.
I’ve shown up to visit a business owner and he has already paved the way with some subterfuge. He’ll say, “OK, if anyone asks, you are my insurance agent”, or “You are my wife’s friend”. Both have happened to me, and I just went in hoping I didn’t get some tough questions. I prefer they say I’m a business consultant – because that fits, and when I show up again someday with prospective buyers they are not wondering why his wife’s friend is now back with more people in tow.
Key, trusted employees are different, and it can be very helpful to have them on your side in an acquisition. Often an acquisition means growth opportunities for them, so it doesn’t hurt to let them in on your plans. Just let them know how important it is not to discuss the plans with other employees.