Situation: A closely-held, non-public company is in negotiation for a possible sale. The CEO seeks guidance on when and how to communicate this to employees. What event would demand communication? The CEO is concerned that if the sale falls through this may significantly damage employee morale. How do you communicate a company sale?
Advice from the CEOs:
- The trigger point for any employee communication will be due diligence. At this point, you may have a serious buyer.
- Going into due diligence, limit updates to those who will be involved in the process.
- Most acquisitions do not go through, so a broader communication risks disrupting the company – unless you are very confident that the sale will proceed.
- Prior to due diligence, there is no benefit to communicating any possible sale to employees.
- What message do you deliver to those who will be involved in due diligence?
- We are entering a due diligence. This is an exercise that we’re doing for our own education so that we understand the value of the company. This is just a drill.
- Keep your eye on the business and don’t be distracted by the offer.
- Have a good idea of an acceptable sale price.
- For a company with intellectual property or significant assets, three to five times EBITDA is a good starting point – unless the sale is a strategic buy to the buyer.
- A possible deal is often spoiled by terms and conditions that the buyer attaches to the deal.
- One buyer (at any one time) is the same as no buyer. When owners get serious about selling the company they will need a broker to develop multiple buyers, to advise them through the sale process and to defend their interests.