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Not Your Typical Change: Helping Key Employees Complement Business Value for a Private Equity Sale.

By Douglas Cook


Most businesses have fairly effective structures in place for dealing with day-to-day change. Whether this means visiting HR, receiving advice from a Supervisor, asking questions or offering feedback, the existing structures enable ongoing organizational transition.

As one can easily understand, however, a business ownership transition is not your typical day-to-day change. In many circumstances, it involves the complete uprooting and transplanting of an established organization into a different culture or paradigm, with a completely new set of goals, metrics and expectations. Existing structures are not set up for the purpose of dealing with one-time events of such magnitude, so expectations that employees utilize existing methods for change can quickly become counter-productive, if not completely nonviable. One component that renders ordinary methods inadequate is the confidentiality frequently required. Therefore, a well-planned and deliberate approach to change as it relates specifically to a company sale is required to achieve best results, and to help maximize the value of your company.

One specific “must have” criteria prospective buyers will evaluate is Owner Independence. This means that key employees, who will need to demonstrate their ability to manage the company, will also be the first of your personnel to experience the change. These individuals likely will be critically linked to the company sale and transition process throughout. Their involvement will be vastly different than anything they have experienced before…and adding to that complexity, they will need to help execute the sale while under the added stress of concurrently performing their existing duties.

Key employees understand the importance of your liquidity event as well as the urgency to get it right. In addition to possible anxiety about demonstrating their competence to a new ownership group, they also may become fearful of making mistakes that let you down, or may worry about not being able to maintain performance critical for the final valuation. To assist them, and you, here are four action steps to enhance the process.  

1) Involve Key Employees in the Preparation Process

Your staff will be able to add significant contributions due to their perspective, especially when developing the sales narrative. Ensure that they understand the ways in which the narrative is consistent with the story that the financial statements tell. This will help with consistency. Key employees need to be able to respond comfortably to questions potential buyers will undoubtedly ask. If they will be part of the presentation to investors, make sure there is a clear playbook, that they know their role, and that the presentation has been drilled repetitively until they are comfortable having to execute it.  Form a clear plan on how your broker will facilitate the conversation should something originate during an actual presentation that has not been considered beforehand. 

2) Maintain Performance Standards and Quality Deliverables

As mentioned, it is critical to final value that company performance be upheld. The focus upon sale preparation often shifts management attention and resources away from growth and other critical performance initiatives.  Ask yourself the following: What are the critical duties required to maintain performance? Can resources temporarily be re-assigned from less critical areas to support them? Can high-potential candidates for management development be identified who are capable of taking on additional projects during this time? Not everything can be delegated; however, building in temporary layers of support where possible can help key employees manage the added pressure more easily so they can be fully engaged.

3) Clarify Vision of Potential Buyer(s)

Rarely does an owner sell without asking prospective buyers what their vision for the company would be. Communicating this information with key employees early, and in as much detail as possible, helps them begin thinking with new paradigms and contemplating future expectations. Open dialogue can alleviate some of the anxiety that may be experienced during critical interactions. Overall, communication will greatly assist the team to mentally process the change. If feasible, set up a Q&A session with new ownership before closing so that vision and management structure can be openly discussed. Understanding whom they will report to, what resources are available for assistance, or even what the first board meeting will look like go a long way in building the confidence they will need to be successful.

4) Promote Communication

Welcome feedback from key employees throughout the process. Complex situations can unfold quickly, may be highly nuanced and may involve completely new circumstances prone to misunderstandings. Resolving confusions as they arise will smooth out the process and increase employee confidence in the outcomes.

Effort spent incorporating these steps into your transition not only supports key individuals who have helped build and grow your business, but also ensures that Owner Independence is well demonstrated. For you, Owner Independence is the predominant “bankable” operational quality your business must possess for a successful, lucrative and timely sale.

Schedule a private call with Doug

Douglas Cook is a Certified Exit Planning Advisor (CEPA) and is the Senior Value Advisor at Headwaters Strategic Succession Consulting, Llc. He specializes in helping business owners formulate exit strategies by helping to increase the transferrable value of their companies.

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