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INFORMING OTHERS
At every stage of the selling process, communication is key. That might sound obvious, but faulty communication is often a source of problems. In selling a company, timing is critical. It should not be rushed. You need to be mindful of both the quantity and the quality of the information you share -- who and how much you tell and how you tell them. A good adviser will help you time your announcements strategically and craft your tone for each one. Here are the key points about communication:
Maintain strict confidentiality. The last thing you need is for your intentions to leak out before you're ready. If you have doubts about someone's reliability at keeping information under their hat, try to keep them out of the loop, if possible. If the market knows you're planning to sell long in advance, by the time you make the move, your deal might already seem stale.
Don't' keep people in the dark. This is the flip side to the above advice. Even if you're a sole proprietor, other people need and deserve to know your plans as they take shape -- especially investors, key managers, and family members. Neglecting to inform people is a great way to sow dissent and resentment. Rumors are likely to be circulating anyway. Furthermore, making a decision in isolation can be very dangerous. As you discuss the potential sale with your business and personal contacts, you're likely to gain valuable insight.
Never appear desperate (especially if you are). If a potential buyer thinks you need to sell as soon as possible, that could instantly slice 25% off the bid. No matter how much you're sweating it, maintain your cool. If it's not your disposition to do so, then have your broker or another negotiator serve as your public face.
Here are some more specific suggestions on how to communicate with different constituents:
The board. As soon as you decide you want to sell the company, you should notify the board. Since they represent the interests of shareholders, this is often a legal requirement. The best way is to convene a special meeting to discuss your motives and rationale for the sale. Hopefully, the board composes a diverse group of people who can offer useful suggestions (or criticisms) and can help you come up with a game plan. Even if your mind is made up, it's wise to adopt a consultative tack with your board.
Investors. With the board aware of your plans, you usually needn't notify investors until an actual offer is on the table. Remember, even promising M&A deals often fail to materialize. So telling investors too early could generate unwarranted excitement since they may realize a gain on their investment.
Customers and suppliers. As a rule of thumb, you don't want these players to know until it's a done deal. There is too high a risk the information could lead to nasty repercussions -- especially if the deal falls through. For example, suppose you're negotiating to merge your company with XYZ Inc., and one make-or-break stipulation is that your firm will have to use XYZ's suppliers rather than your current ones. If your suppliers tell of this during the negotiation phase, they might well decide to drop you now. If the deal falls through, your company could be in big trouble.
As for informing customers, it's usually a good idea to do so until the deal is done. Even if the prospective sale would benefit your current customers, news that a deal is in the offing could shake their confidence. Regardless of what you claim, they're likely to wonder, Is the company in trouble? Is our account in jeopardy? And if the deal falls through, then customers may consider you to be in a worse situation.
An important point: If either the seller or the buyer is a public company, the question is probably moot. Disclosure is prohibited in most cases because of federal securities laws.
