Telling Your Employees That You Are Selling

John Warrillow, writer of the book Built To Sell, recently wrote an interesting blog post titled “When & how should you tell your employees you’re thinking of selling?” It’s a great question.

John discusses a “hybrid model” in which he told only his senior managers about the planned sale. From our experience, this is generally the best approach. You are going to need to let your senior managers know you are thinking of selling as:

• Your banker or M&A advisor is going to want to meet them before marketing your company.
• Potential buyers will insist on meeting with them.
• They will be instrumental in putting together the marketing materials to get your company ready for sale.
• They can be a much-needed source of support during the sale process.

When John was CEO of his company, he told only his management team and opted not to tell his employees, and it made him feel “like a fraud.” While keeping this “secret” from employees can be emotionally straining, it is usually the right call. Here’s why:

• Due diligence takes a long time: it’s crucial that your business continues to perform as best as possible while your company is being evaluated by investors or buyers.  The process of selling your business can easily take 12 months from start to finish.  If your entire team gets distracted and performance suffers, it’s likely that any serious buyers will use this as a negotiating point.
• A sale process can result in a wide range of outcomes, so don’t count your chickens: processes that start out as a sale process sometimes turn into a joint venture or strategic partnership discussion. You can’t always control where a process leads, and you want your business to be performing optimally no matter what.
• The buyer might structure an earn-out: earn-outs allow a buyer to pay a seller partially up front, and the remainder in the future, often subject to performance benchmarks and hurdles.  Again, the stronger your business is performing, the more likely you’ll be to achieve 100% of the earnout
• You may decide not to sell: we’ve worked with business owners who, after a long and arduous process speaking with different buyers or investors, decide to cancel the process and continue running the business without a transaction.  If you let your entire team know and then change your mind, it sends a mixed signal to your employees.  Not recommended.

Deciding who in your firm you inform is a very personal decision that will impact the lives of everyone involved. Our advice is that you tell your senior management team and that despite all the temptations, you hold off on communicating the news to your entire company.

For those of you who have sold your company or begun a sales or financing process and have some thoughts on the above, we would love to get your thoughts. Please let us know in the comments below.