Deciding who should be involved on in a deal, and when and to whom to communicate that one is being considered, can be a tricky decision. Megan Brobson, vice president at Borgman Capital, says it's important to be strategic when choosing the employees who are brought in under the tent.
"There is a burden to sharing that confidential information," Brobson said at the Milwaukee Smart Business Dealmakers Conference. "They are then put into situations a lot of times of having to cover for management when management is all of a sudden having a lot of closed-door meetings when they typically have open door meetings, or a lot more people in suits are visiting the company.”
As far as who should participate in management presentations, there are three categories to focus on. Those are the people who understand the financial strength of the company and can speak to that, the operational excellence of the company and the strategic vision of the company. She says it's important to bring the team forward that the buyers are looking to invest in because they are critical to the deal.
"The current team, in our view, is really the daily experts in the industry," she says. "And we're new to the industry and understand a lot of the strategic things at play, but where we rely on the current team a lot is, what's the current culture? Where are you guys trying to take the company? What don't we know? We take that student position in the day to day. We also are, as with any buyer, really looking at what are the puzzle pieces currently in place with what are people's strengths and weaknesses within the company? Where are the strengths and weaknesses within the organization? And trying to have as honest a conversation as early as possible about what might need to be added to those teams or what changes might need to happen.”
In the lower middle-market side of things, one aspect that's important is the seller's goals. Are they looking to stay on for another few years? Another 20 years? Or do they want to exit soon after the deal closes. For buyers, that means earning the seller's trust to learn early in the process what they actually want.
"For us, one thing that we always say is we can adjust better if we know what you actually want to do," Brobson says. "In our experience, it is very hard to go from a business owner to an employee of a company. And so oftentimes, even the owners that initially want to start by staying on for two years, post-acquisition start to realize it's really hard to watch other people make decisions for my company that I'm still very emotionally attached to."
When sellers do intend to leave post transaction but have an active, day-to-day role in managing the company, buyers need to understand what the business owner actually does daily. Is there another person in the business who has strong customer relationships, who has institutional and tribal knowledge. It's also important to understand who in the company are the influencers, positive and negative — the unofficial leaders.
"Every organization has the key people that don't hold titles, but everyone else follows. So, identifying the roles that people play."
Telling employees that a deal has closed is critical for her and her team.
"We always have the buyer, the management team and the seller announcing it to employees as quickly as possible once the deal has been closed," she says. "For us, it is critical for employees to hear it from that team, not to be hearing it from a PR, LinkedIn post or something like that. It's very important that the buyer and the seller and the management team have a united front and make that announcement together. And it's important to the best of your ability to be telling first shift, second shift, third shift all on the same day. There will be rumor mill things that go on as soon as you tell a certain group of employees. But as quickly as you can, tell all the employees together just to try and tell the accurate narrative instead of letting the rumor mill get the better of it."
When it comes to telling customers and suppliers, pending any kind of legal constraints on what can be shared, they use the same team of buyer, seller and management on the phone call. Typically, it's done in the days or the week following informing employees.
"What you're sharing with them is as much as the seller wants to, at least from a high-level story. Why did the seller decide to partner with this buyer? Why is the buyer confident that even with growth, which is never smooth, they're still committed to providing high-quality, on-time delivery of products to the customer. Why they plan to continue to be a very strong partner to that customer."
Conversations on the supplier side follow the same pattern — it's about creating certainty and clarity around the new goals and highlighting any new point of contact.
"It's about creating certainty to the suppliers and saying, you guys are still a critical partner for us, and having open lines of communication with both sides."