Everyone says it, “A company is only as good as the people in it.” The human capital part of an acquisition is a critical component to any company wanting to grow and prosper, yet done so poorly by so many. It is difficult enough to find good people these days and that is one of the primary reasons for acquisitions being preferable over building a new shop — the people. Over the years I have been on both sides of the fence many times as both the acquirer and the acquired, and I have learned a lot about the importance of the leadership skills needed for a successful transition from one company to the next. So whether you, the reader, are planning on selling your company or perhaps you are looking to acquire additional locations for your growing business, I hope this article will help you avoid some of the leadership pitfalls that commonly occur during a business acquisition.
The “secrecy” factor
Buying or selling a business takes a long time, even after the initial buy/sell agreement is made. Most businesses feel that it is in the best interest for everyone to keep complete secrecy and most legal agreements include non-disclosure language that demands that no one tells the employees of the company being sold or anyone else for that matter. I understand that most companies do this to gain a quiet competitive advantage in a particular market and to keep the employees in place until the acquisition is announced. Also, in many cases, the buy/sell deal falls through which could also leave employees feeling insecure if they hear about it.
Some of the reasons businesses go secret:
- Public uncertainty and loss of revenue
- Retaining DRP and other referral relationships
- Vendor relationships
- Competitive advantage
- Retaining employees
Loose lips sink ships
Several years ago I was working full-time for a company as a consultant. In short, my job was to increase the value of the company by increasing profits, securing a good work force, and improving operational efficiencies in order to make the business more “sellable.” The owner of this organization was transparent with me about his intent to sell, but was contractually obligated to keep quiet about a newly reached buy/sell agreement. Within 30 minutes of the agreement being reached, the news had already traveled back to me and to everyone else in town. I marched up to the owner’s office to confirm the rumors on the street and he said, “how the heck did you hear about that?” Someone in the buying party had apparently been bragging to friends. There were even rumors running rampant that the acquiring party was bringing in their own crew and everyone was going to be terminated from the company I was working with. This violation of secrecy was devastating to both parties and took many additional months of hard work to restore the damage that had been caused. Eventually the purchase did get finalized, but by that time employee trust had deteriorated and most of the employees ended up leaving anyway when the new leadership was in place.
The big surprise!
Shocked and disappointed faces have been deeply imprinted in my mind: A woman seated in front of me covering her face to hide her tears. An older gentleman sitting near the back with a disgusted sneer at the former owner, probably wondering how this is going to affect his retirement. Yesterday I felt like a conquering hero, today in this room, in front of these real people, I felt like a jerk. I had never met any of them, only heard stories about them, but today these people were real and I was to be their new boss. This describes the practice of the acquisition announcement done wrong. When employees are called into the big scary meeting where these transactions are suddenly announced they are absolutely blind-sided in most cases and the emotional damage can be messy. It is difficult indeed for an owner to make the announcement to his employees, but before you subject them to the presence of the new owner and acquisition leadership team, I find that it is best that the owner breaks the news to his team first and then later introduce them to the new owner after they have calmed down a little.