By , Axial | August 4, 2015
The situation: During the transaction process, you assure the sellside CEO nothing will change. It’s an easy promise to make–sellers are worried about the loss of control, their future legacy and company culture, so the assurance often moves the transaction along and appeases fear.
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| Model of the Acquisition Process. (Photo credit: Wikipedia) |
But especially for strategic buyers, the promise to change nothing often proves to be an empty one. And it’s even more uncomfortable if you’ve built the transaction on an idea that just isn’t sustainable for capturing synergies and integrating the acquired company into your own. Both the transaction and integration processes will run smoothly if they’re based on a foundation of trust and a mutual understanding that change is inevitable, but that only applies if you have that conversation ahead of an inked deal.
The best way to have this conversation successfully rests on the fact that you have the seller’s interest in mind–demonstrate that you’ve thought about what changes an acquisition could mean for both parties and how you plan to make sure that out of the transition period will emerge a more efficient and motivated venture.
Here’s a guide to having an honest conversation about what the transition period will look like for both companies, which should put you on track for a much smoother and more successful acquisition process:
Establish why the deal benefits both companies
When a seller brings up hesitancy about the future of his company, start the conversation with why the deal was right in the first place. There was something about your company that made him feel like you were the right buyer, and you saw important growth opportunities coming from the deal. This is ultimately a win-win for both parties, and the transition period is a necessary journey to get to the high level outcome that both of you were looking for in the first place.
With this perspective, you’re talking in terms of value. Rather than the seller fearing potential changes to his company, he needs to understand that the transition period is a way to get to the wins for both parties. He had some motivation for selling the company–pursuing another venture, preparing for retirement, or taking some risk off of the table. Remember the end goal and emphasize that you’re ultimately concerned about success.
Make sure you understand what aspects of culture are essential
It’s well-known that company culture is essential in growing a successful business. Whether you directly observed it or not, a big part of why you were interested in acquiring that particular company in the first place likely had a lot to do with their culture. As a fellow company owner, no one understands better than you that traditions and missions create a community, and it’s a scary notion that everything you’ve built will be wiped away once you get acquired.
Let the selling CEO tell you how it has evolved, what traditions are especially important to the community, and how you might fit into that picture. When the process becomes more about collaboration and sharing what captures the most value, you’ll create a better integration plan that makes your future employees feel like part of the community.
Talk operational efficiency
The sellside CEO probably doesn’t need to know all the details of what your operational streamlining process will be, but it’s worth being realistic about the fact that there will be some amount of change. Once the seller understands you care about the company and want to make it operationally successful, this part of the conversation shouldn’t be as difficult.
Depending on the sale process, you may or may not have some insight into what financial synergies can be captured post-acquisition. The CFO plays a large role in this part of a deal, but the CEO will often be a contact point for more high level conversations surrounding change. Regardless, the most important aspect of the conversation is that you don’t feel you need to make unrealistic promises that’ll disappoint employees and lose trust.
Some amount of discussion of your general integration timeline will likely put the sellside CEO at ease. If he hears you talk about observing his company, asking for employee input, making basic office changes and streamlining for efficiency, the future doesn’t look so uncertain. Most selling CEOs just want to know that their employees will be taken care of and their legacy will remain in tact, so letting him know you’re going to make any changes with care will go a long way.
When making an acquisition of another company, the integration process can spell the difference between maximized value and a failed deal. There’s a delicate balance between making necessary changes and retaining what made the company an attractive buy in the first place, and transparent communication is key to a successful acquisition.
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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