Tag Archives: Event

How Do You Communicate a Company Sale? Six Guidelines

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.

How Do You Boost Shareholder Value and Liquidity? Five Ideas

Situation:  A company wants to create a liquidity event every 3-5 years. The objective is to increase shareholder value and also create opportunity for employees. How do you boost shareholder value and liquidity?

Advice from the CEOs:

  • What are the important considerations in evaluating different options?
    • Seek partners or investors with whom you have synergy and who will improve business prospects. There must be more than just their ability to provide cash.
    • What is the role of key management and employees post deal? For how long?
    • Are there timing aspects that help to maximize your own valuation? For example, if your business is cyclical, is there a time of the year when the financial picture is optimal?
    • As you evaluate alternative deals, evaluate the M&A fees around each option. Could these funds be used differently with greater impact on liquidity?
  • Technology spinoffs can increase liquidity while keeping the core company whole. Jack Stack describes this process in The Great Game of Business. This is also simpler and cleaner than many collaboration options.
  • Considering collaborating with or purchasing a complimentary company with an office in a desirable geography.
    • If an opportunity appears synergistic, dig to find the depth and value of the synergies.
    • Consider timing options. Are there prerequisites which will increase probability of success?
  • Roll-ups are doable but risky. It is hard to find examples that work. Challenges often come from of cultural issues and lack of compatibility.
  • Look at the experience of similar companies as benchmarks for what you might anticipate from various options.