When Should Your Management Team Be Engaged When Exiting?

Last week, we began the conversation with a 3rd party who was acting on behalf of owners (shareholders) intending an exit. As usual, we gather information to help us become familiar with the company. Asking how involved the management team is in the acquisition process, I was surprised to hear that only the CFO knows about the shareholders' intentions to sell their shares, and then only because of the necessity to disclose the financial information.

Now, of course you can decide that you have the right to exit your company and drive the change in a way you consider appropriate, but, at the same time, there are some considerations to bear in mind if you’ve decided not to bring your management team into the process.

A few things that may have an impact during and/or after acquisition include:

?1 – Business Continuation

A good friend of mine once told me that software companies are good at selling their software and keen to bring partners in to do the integrations, migrations, onboarding of customers, etc. The problem is that once licences are sold, the partner is left managing the customer every day. His observations were that software providers sometimes sold licences not fully fit for purpose and left him and his team to deal with the "mess" afterwards. This could drag on for months and sometimes even years to come.

So, applying this to an acquisition process, it’s the management team who will deal with several things during the acquisition process, but especially after the acquisition. There will be questions and concerns. First to come, in true instinct for survival mode, is my job on the line? Is my team’s job security jeopardised? From there, many other questions will need to be addressed for the management team, and everyone else under their watch - for example, merging teams giving rise to necessary retraining, hiring and/or redundancies, a new culture and ethos, salary and benefits plans, sales territory, targets and compensations, etc. And remember this has to be undertaken while your team is expected to still perform and deliver as if nothing was changing.

?2 - Strategic Plan and Growth

It’s essential to understand the crucial role management has in the acquisition process, and not only for the change management challenges mentioned above. The company has a strategic plan and growth path which has been communicated and performance is being measured against it. Investors look at growth projections because past performances do not indicate future results. A management team backing those growth plans based on their experience and expertise is almost vital to ensure a successful acquisition. We all know anecdotes (and even some real life examples) of projections where quasi-comical mathematical exercises are based on scant data to result in a graph with a line running left to right at a 45°angle with the footnote "10% YOY growth projections as per current market conditions". All jokes aside, the crucial thing to consider is that your management team is planning and projecting the company's growth based on experience and expertise. They are the ones who have to deliver and are accountable for that. Their effort and contributions deserve the respect of being informed and/or included when something may impact their cohesive, clear and executable plan. Include them at the earliest opportunity.

?3 – Acquisition Process

Your management team is quite knowledgeable about your company and how far things can go to support the acquisition. It’s not only personnel management - change management, business continuity and growth are part of the process too. The eventual structure that the acquisition will have has an impact on the business. Will it be debt-free, equity + debt? What’s the timing of the process, including due diligence, employee interviews and management interviews? How will signatories and controls be impacted? What synergies exist and what integrations will be required post-closing? Will there be organisation structure changes? How will teams be informed and updated on progress and changes? The list goes on. Many years ago, I was an employee of a company acquired by a large multinational corporation; all my colleagues and I were very willing to adapt and cooperate with the changes, the new culture and challenges. Still, one thing was a red flag for all. Our biggest concern was the uncertainty of keeping our jobs which led to misinformation. It was so powerful, our water cooler chats swung from reassuring each other that everything would be fine, to sharing negative ‘updates’ (a friend of a friend told me). I wonder how things would have been different if we’d all been pulling together to get the process done efficiently and emerged into the new organisation ready and willing to thrive.

?4 - Incentives & Arrangements

This is a significant point. The management team and employees may have a stock option plan or other compensation and rewards mechanisms in place.

There are some sensitive areas when continuation or termination of employment is discussed. Questions like: how will the current compensation plans translate to the new organisation? Will any of our options, dilutions or appreciations be affected? At the same time, most companies believe that their key people should be retained. The reality also is that in many cases, some of the team will become redundant in some way. Many times this can be managed organically. Some people reject being part of a larger organisation; others may see it as an opportunity to leave to pursue other interests or career paths. Others will not be happy. In any case, HR plays a key role in acquisitions, particularly with communications. There are many possibilities, and negotiations can take a fair amount of time.??

?5 – Employment issues

Buyers will most likely want to put an employment agreement in place for the C-Suite or part of it. If your company does not have a C-level team, consider the key people that run the company, Managing Director, Finance Director, Sales Director, etc. The earliest they can see the employment agreement, the better. If you have a large organisation, it would be prudent to have an employee counsel to review and negotiate on behalf of all staff. A few things to consider; scope of the job, compensation and benefits, terms and terminations, expenses, liabilities and insurance (executive team), confidentiality, limitations, taxes issues and dispute and arbitration processes.?

In conclusion to this article, in small or large organisations, there are many ways to achieve goals. Having a clear vision of the outcome, how it will look, what mechanisms are in place and documenting the action plan to get there is one. Clear and concise communications with all parties involved is crucial. Bring the management team into the conversations as early as possible and be ready to engage on cue.?

Disclaimer - This article does not constitute legal, accounting or tax advice and is for educational purposes only. You are fully responsible for sourcing third-party independent advice from reputable professionals on the matter.?

If you'd like to discuss the opportunity to sell your company, let's connect via Linkedin or use the contact form to get in touch. We're building a unique integrator company, and we'll need experienced partners in that company too.

What's your risk in picking up the phone and calling or Whatsapping me on + 353 86 0 444 770? In fact, less than three minutes on the phone could satisfy your curiosity about what we do and how we do it, but it will also tell us both if this is worth pursuing further. All discussions, of course, will be held in the strictest confidence.?