Selling Your Business: When & How Do You Tell Employees?

meeting
November 20, 2017

Whether you are currently in the middle of a deal to sell your business or just beginning to think about the process, at some point you will have to inform your employees about the intended transition of ownership. This is true whether you have 100 (or more) employees or just a handful.

A clear, undesirable occurrence is for your employees to learn of an intended sale from company insiders (not you) or, worse, rumors in the office, plant or on the street. News of a possible sale must come from you directly, which is why deal confidentiality is so crucial.

Proper handling of information about a business sale is critical in getting employees to accept and embrace such a significant change.

  • All things being equal, it is generally best to inform employees as soon as the deal is consummated; ideally the same day. Informing employees before the deal is consummated can cause both embarrassment and confusion if the deal falls apart at the 11th hour, or if there are late material changes such as you aren’t being retained for a lengthy transition period (i.e. you are now departing immediately post-close). By waiting until immediately after closing, you will be giving your employees perfect information.
  • But you might have some employees that need to be informed early in the process. There might be employees who, by having early knowledge of a potential sale, can help with due diligence. Or you might have relatives working for you and, due to a sense of family, you feel obligated to tell them early. Finally, if you have just a small number of or long-term employees they will possibly figure out what is going on by your changed behavior (closed door phone calls; long, mysterious luncheons; etc.), so it might be best to inform them of what is happening just as soon as a letter of intent is signed.
  • Regardless, it is important to explain what you are doing, why you are doing it, and the timing of the event. In virtually all of the transactions in which I have been involved, the buyer correctly looks at the employees of the business he is acquiring as business assets and, as such, rarely makes any personnel changes during the first several quarters post-close. Be sure to tell your employees that buyers look at them as valuable assets of the business they are buying. And if you are giving them the news pre-close, please be sure to ask for their help in guarding the confidential nature of the transaction. You do not want your customers, vendors, bankers, and/or competitors to know what’s going on before the sale is closed. You do not want to alarm stakeholders and/or give competitors something on which to start negative rumors.

Whether you ultimately decide to tell all employees early in the process, some key employees early in the process or tell all employees at closing, please be sure you feel good about your approach to this very sensitive matter. This is a subjective decision, which will depend on a lot of gut instinct to maximize confidentiality and to minimize the chance of corporate upset and embarrassment.

Contributed by Michael Greengard, Praxis Business Brokers.

Through the Michigan Chamber’s partnership with Praxis, we can guide you through a step-by-step process of the complexities, all while maintaining complete confidentiality. To learn more about selling your business, please contact Lindsay Fulton at lfulton@michamber.com or 517-371-7691.