Emotions Run High In M&A, But Effective Communication Keeps Deals On Track
Sharon Heaton is the CEO of sbLiftOff, a lower middle-market M&A advisory firm that serves founder-led businesses and GovCon companies.
With a lot of investment capital on the sidelines, and valuations still favorable, a lot of company founders and owners will decide that this will be the year to sell their business and move on to their next chapter. I have worked with many such founders over the years, and I always advise them that mergers and acquisitions are far more complex than anticipated.
The human elements of a deal can rival the balance sheet and other financial metrics in terms of importance. The human factors—including communication—are also the most likely to be underestimated by owners looking to sell their companies.
The importance of a clear communication strategy and plan cannot be overestimated. Prior to the start of a transaction, a seller needs to think about who among their management team can and should know about their plans, and how and when should they inform customers and their employees.
Staying silent until a deal closes can be a costly misstep, but so is over-communicating during the deal process. Sharing the right information with the right parties at the right time is what prevents M&A transactions from going off the rails.
Build Your Inner Deal Circle
It’s important to strike a balance between revealing too much to the wrong parties and not revealing enough to the right ones. Where you fall in this dichotomy could affect the deal, as well as your company’s current standing. Communication with a select group is a must because no owner can take on the M&A process single-handedly.
Identify a few key advisors who may be external to your business, such as a financial advisor or an external accountant. If possible, select an employee with detailed knowledge of sales projections, technology or business development processes who can provide the buyer with additional information on the growth potential and the quality of customer relationships.
Whether internal or outsourced, one or two carefully selected advisors or team members can offer invaluable help with the process, including facilitating requests from potential buyers. This allows owners to focus on their day job—running the day-to-day operations of the company—instead of the deal process.
Designate Roles And Responsibilities
At some point during due diligence, potential buyers want to talk to existing customers, which can be challenging for a variety of reasons. Most likely, sellers will not feel comfortable sharing the news of an impending sale with customers until they are assured of a successful transaction. Furthermore, sellers may not have informed their business development team of their intentions to sell.
Depending on the buyer, there are a few different possible resolutions. The seller may choose one or two of their largest and long-standing clients for conversations rather than their entire customer list. There are also ways to gather customer satisfaction information through third-party consultants. There may also be change of control clauses in contracts that will take precedence over the process.
These options need to be thought through prior to the start of due diligence. Anyone who is communicating with clients needs to be able to effectively communicate the rationale for the deal, the strengths of the buyer and the ultimate benefits for customers.
The transfer of a business to a new owner offers a seller tremendous opportunity for growth and transformation, but it also carries risks if the news is not communicated in a timely and effective way. Designating roles and clearly outlining responsibilities, especially those related to existing customer relationships, helps provide a smoother transition.
Craft An Effective Deal Communications Strategy And Plan
Sellers are always concerned about how and when they will communicate to employees a change in ownership of their company. If they communicate their plans too early, employees will be worried and distracted. If they communicate too late, employees may feel sidelined or unsettled.
More importantly, sellers consider their employees not only critical to their existing business but integral to the future of the business. Buyers put talent on an equal footing with deep customer relationships, highly differentiated products and services and a strong balance sheet.
Sellers may have a lot of information to impart, but they may only get one chance to get it right. So be sure to develop a communications plan with the new buyer in advance of closing. The plan should include key talking points that address the rationale for the transaction, the future of the existing management team, near-term changes in the business and background information about the new owners. It may be best to roll out an initial communication to the senior management team that also includes provisions about who, when and what to communicate to the broader employee population, customers and vendors.
However, the communications process doesn’t end on the day of the deal announcement. The new buyer needs to consistently engage and communicate with employees, customers and partners in the days, weeks and months after the announcement—especially as key changes begin to take place.
Business owners initiating a sale need to have the right conversations at the right time and be prepared to speak to multiple different audiences. Communicating too little—or communicating ineffectively—can mean that the emotions that come with every deal can heat up to the point of threatening a good outcome.
Communicating too much can cause confusion and anxiety and feed misinformation about the transaction. But communicating with the right people the right way is among the most effective tools for closing a deal successfully and having a great outcome for the seller, employees and customers.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?