Acquisitions are stressful for employees. Deciding what to tell my employees, and when, was a tricky decision for me when I sold TEAL Electronics. First, I thought of a number of reasons to tell them right away:
- We encouraged a culture of honesty, and hiding (or worse, lying about) acquisition talks undermined that value.
- Fear of the unknown is greatest, so sharing (and explaining) the truth would mitigate the negative impacts.
- They’re going to find out anyway.
Of course, I got lots of good advice on why I should keep it quiet until the very end:
- You’re likely going to have a kiss a number of frogs before finding your prince, so why put everyone through unnecessary stress until it’s a sure thing?
- Good employees might get nervous and leave, reducing the acquisition value.
- The buyer was a public company and feared premature disclosure.
- Fearful employees might try to undermine the deal by giving the buyer a negative impression.
- Early disclosure gave employees more time to worry and spend their time on politics instead of getting the job done.
Employees have good reason to fear an acquisition. Some of our employees even thought it meant the company was going to be closed automatically. Left to their own devices, most employees would see only the threat, not the opportunity an acquisition can present to them.
Rumors are caused by an information vacuum plus the potential for surprisingly good or bad news. So we did our best to kill the surprise – and it worked. Here’s what worked well for us:
- We told everyone from the company’s early days that it was our goal to build – and sell – the company some day. And that this event would be just another milestone in the maturation of our great company.
- We told everyone that buyers would come kick the tires from time to time and we would always listen. I tried to take potential buyers through the building every six months or so, starting well before it was really time to sell.
- We found a buyer who valued our management team and wasn’t planning large layoffs, which would have made it harder.
- Our senior managers all had stock options, which generated a nice incentive to complete the acquisition. Nevertheless they had fears too. In the end, we had a whole team of people helping allay employee fears.
- We educated our employees on what an acquisition means and how it works. They appeared to appreciate being told what to expect compared with guessing. And in doing so we were able to accentuate the positive aspects of the acquisition.
- We gave status reports at our monthly all-hands meeting every step of the way through the acquisition. We did this to the point until we received employee feedback that they had heard too much and we should focus more on operational issues.
- We told the acquirer that our culture required us to be honest with our employees, and that they could trust them to not make premature public disclosure of the acquisition. Then we told our employees we couldn’t tell them the name of the public company buying us and promised to give them enough information to enable them to assess the impact on their jobs.
This story turned out well. By the time the acquisition was completed, it was pretty much a non-issue for everyone except our overworked CFO. Nobody left, and everyone said good things during due diligence. This increased the buyer’s motivation to close, which gave us good leverage during the development of the definitive purchase documents, keeping the real price high.
Moral of this story: honesty was the best policy, but it took thorough preparation and hard work.
© 2006 Bill Carpenter. All rights reserved.
Bill Carpenter Chair San Diego Social Venture Partners