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Taking the Mystery Out of Mergers

You've been working on a deal for months, so you might be surprised to know how little your employees understand about it. Here's what you need to tell them.

Mergers and acquisitions often feel as if they’re shrouded in secrecy.  I don’t want my industry to know!  I don’t want my employees to know!  I don’t want my customers to know!  If news of a sale or merger gets out prematurely, it can spark nasty rumors from your competitors, internal anxiety among your employees, and uncertainty among your suppliers and clients. 

That’s why your banker, broker, and anyone else involved in your deal will insist on confidentiality agreements, non-disclosure agreements, and other precautions.  But here’s the problem: By the time the deal is done, keeping everything hush-hush has become a habit, and top management may not realize how much information their employees still need to know.  You’ve focused your efforts on getting the transaction closed, but now you have an important role to play in getting the message out and sharing information.

Explain the Deal

At precisely the time when integration and growth are vital, communication becomes more difficult.  You might be surprised by the number of employees who won’t understand what’s going on, much less why. Be clear about the terms of the transaction and the new ownership and management structure. 

Remember to explain why the deal is such a good idea!  It can be as simple as, “This merger means that we can use Acme’s sales team, and they get the benefit of our anvil research department.”  One CEO I know was particularly successful in getting his employees on board. Here’s what he said: “Now that this investor has bought an ownership stake in the company, we have the resources to expand into three more states, we plan to double our revenue next year, and here’s how that will increase employee bonuses.”

Do it Directly

I was once part of a significant transaction, where, almost immediately, the culture started to implode.  Employees were running for the exits, and the high turnover was extremely detrimental. Instead of actively working towards a solution, the CEO created a task force to address it. He wasn’t even on the task force! If there’s a better way to say, “I don’t care,” I’ve yet to see it. Within two weeks, four of the seven members of the task force had left. This could have been a great merger, but mismanagement such as this turned it into a disaster.

After the deal is done, things can get hectic very quickly.  Take the time to step out of your office and talk to employees face-to-face. Encourage other members of your management team to do the same thing.  Emails and memos are good for conveying detailed information, but they don’t give you any feedback on how that information is being received, and whether your organization is developing the trust and optimism necessary to make a sale or merger work.

Promote the Positive

A merger or acquisition is successful when it’s a win-win for everyone, including the employees.  Maybe the sales team will get better training, or the administrative assistants get better software, or perhaps everyone will have better benefits. Big changes to an organization create anxiety, but you can counteract this by explicitly stating why this new corporate structure is a positive thing.

This is also a great opportunity to get your employees fired up and excited about the future.  One company I worked for acquired a subsidiary and threw a “Happy Birthday” party to celebrate the new arrangement, with some (short!) presentations from management, a couple of goofy contests, and of course cake. This was so successful at creating a team atmosphere between new co-workers - who didn’t know each other and didn’t have any reason to trust each other - that they keep up the tradition every year.

A transaction - whether selling, merging, or taking on a financial partner - can deliver fantastic results.  Make sure you understand what needs to happen after the ink has dried to make it successful.

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Last updated: Jul 10, 2012

DAVID LONSDALE | President, Allegiance Capital

David Lonsdale built and sold three venture-funded companies before becoming president and co-owner of Allegiance Capital in 2005, which provides M&A financial services to middle market business owners.




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