Situation: A family-owned business received an unsolicited letter of intent to purchase the company. The Board is split on sale of the company, but has agreed to allow due diligence. Only a few key employees are aware of the LOI. What are best practices for managing a due diligence process?
Advice from the CEOs:
- A due diligence process can be a major distraction. Put as short a fuse as you can on the due diligence process; insist that the information requested be limited in scope to essential materials to minimize distraction; and that the process not interfere with scheduled company commitments.
- It is exceedingly difficult to hide reality from the troops. Good due diligence is incompatible with secrecy. Absent communication about the situation, if rumors develop at least a segment of employees will assume the worst leading to possible employee loss and erosion of leadership credibility.
- It is better to explain the situation and put it in the best light. Here’s an example:
- The company is not for sale but has received an unsolicited inquiry.
- This is happening because the company is successful, is producing consistent value, and others appreciate our success.
- Whatever happens, the company will continue as a going concern and if the company is sold, all efforts will be made to assure the retention and security of the employees.
- Ideally, communicate this through a company-wide announcement, with video link to remote sites, and with the opportunity for employees to ask questions.
- Brief all key managers in advance, with Q&A scripts to deliver a consistent message and address individual questions.
- Strictly control the due diligence process.
- Restrict direct contact with employees and, to the extent possible, with key customers.
- Maintain your focus on the business – there is no guarantee of a sale.
- Put retention packages in place for all key employees.
- If the deal does not go through, assume that it will negatively impact company results for at least one quarter. Adjust your forecasts and incentive programs accordingly.
Key Words: Due Diligence, Purchase, Time Line, Distraction, Communication, Message, Coordinate, Q&A, Limit, Incentive, Retention Package