One of the many concerns to deal with at the beginning of selling your middle market A&D company is who in your company you are going to share the information that the company is going to be sold. It is an important decision because how the sale process is conducted will be affected throughout the process. Some business owners will share the information with those key senior people he or she will need to effectively conduct the sale process. These frequently include the CFO, senior Marketing individual, and the senior operations individual. And, as we discussed in Deal Note® 94 (Retention Bonuses, November 21, 2023) and Deal Note® 134 (Who and When, August 27, 2024), these are the same personnel with whom we strongly recommend a sales incentive agreement such that they are motivated to do their best to assure a successful company sale.
The benefit of limiting the sale information is that it keeps the information limited and therefore reduces the risk of losing key personnel in your organization. This approach also better ensures the confidentiality of the information and reduces the risk of third parties becoming aware of the potential business sale, e.g., customers, suppliers, competitors, etc.
Other business owners may choose the direction of sharing the company sale information with all employees upfront. This is done by those owners who have typically developed the business over a long period of time and created a long-term collegial relationship between the employees and him or her, as the owner. In general, the business owner will offer “sales bonuses” to all employees, typically a function of position and tenure, while still having written incentive bonus agreements with those key employees needed to assure the sale is successfully closed (CFO, Marketing, etc.). The key benefit of this approach is that it eliminates the need to have frequent cloistered or secret discussions and further builds an open and favorable environment to ensure a smooth sale process. This approach also makes the transition easier for the new owners of your company because there are no surprises and fewer high emotional reactions when the new owners are introduced.
As sellers of middle market, A&D companies we have seen both approaches to a company being sold work very successfully. It most frequently comes down to the climate created by the business owner between him or her and the company employees. We have worked with both approaches and after the correct upfront conversations, either approach can successfully be used.
Have a great day,
Bruce Andrews
Partner
