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Selling and Telling
Notifying Employees the Company is for Sale

By Howard I. Bernstein
Principal
J.H. Chapman Group, L.L.C.

The food-industry entrepreneur usually realizes “the day” eventually will come: the time when his company has built sufficient equity and marketplace presence to prove an attractive purchase. 

For the company’s creator, it’s often on to “bigger and better” things. But what about the employees who helped build that organization from just an idea to a functioning enterprise?  

Most business owners are quite concerned about their employees’ fates and don’t regard a sale as a clandestine dollar exchange combined with a hasty exit. Rather, one of the most difficult tasks facing an entrepreneur selling his business is when and what to tell employees. Despite the possible discomfort this situation poses, it need not be an agonizing one.  

Each situation obviously presents its own unique dynamics, but our experience with numerous transactions has uncovered vital examples and principles useful to anyone pursuing a sale. Learning these tenets can permit owners to move on while also protecting their loyal employees. 

Fear factors

Most owners planning a sale hesitate to reveal their intentions to employees due to one basic misconception: They erroneously believe employees—worried about job security—will seek other employment and, in the process, make the business less sellable or disadvantaged should a sale not go through.  

To counter this, employees should be told about the benefits a new owner will bring. These include dedication to building the company, plus the infusion of financial strength for sales, marketing, equipment or even a new plant. Another method for assuaging uneasiness is to explain to employees that buyers typically reduce costs by growing the business without new hires, not by dismissing current employees. 

If a business is expected to be operated by its new owner at its present location and with most employees staying on-board, telling the employees is much easier. In such a case, prompt disclosure to employees is the best course and should gain their confidence and enthusiasm, avoid their disappointment at not being trusted with the information, and perhaps even make the business more attractive to prospective buyers. 

Owners also could benefit from describing the buyer. In cases where the buyer has been identified, be specific. If a buyer still isn’t known, owners might describe the type of buyer being targeted. 

Obviously, it’s impossible to ensure a hassle-free scenario with employees, customers or vendors. However, full and prompt disclosure (when properly handled) is more likely to reduce risks than increase them. Rumors are destructive and are likely to create fear, confusion and lack of trust. Limit speculation by telling employees what you know. After years of mutual loyalty, this is no time to destroy valued relationships.  

Easing the Transition

Once employees have their fears satisfied, they’ll want to know what happens next. Keeping communication channels open throughout the ownership transfer will help toward achieving a seamless transition. 

Explain the company’s changeover strategy by presenting a clear, shared vision that benefits the whole organization. Disclose management changes early and provide updates often as plans progress.  

In many situations, best-case scenarios occur when new owners keep key management either permanently or during the short-term transition period. Retaining these executives can ensure continuity and maintain momentum for the effective installment of new owners.  

In one instance, a food company bought a small company and offered three-year contracts to four of its executives. In another instance, a large acquirer purchased a smaller, co-owned private food company. One owner left immediately. The other owner remained via a five-year contract, then stayed another five years. His presence enabled continuance of past pro-employee practices. 

Even when events seem grim, they often can turn positive. One large public company acquired a firm with a similar business focus and infrastructure. The acquired company’s facilities and most staff were identified as redundant. Employees, however, received generous severance packages and management obtained out-placement services. 

Timing is everything

When a firm decision to sell occurs, it’s common practice to quickly tell key employees and provide reasonable assurances about their futures. Their cooperation will be needed to gather data and make presentations to potential buyers.  

Note that, for all practical purposes, few buyers will proceed unless key people stay on since they don’t have management on the bench waiting to take over. Plus, most buyers realize they shouldn’t expect to change the acquired company’s culture. Most purchasers who’ve attempted such a transformation faced unpleasant results. 

Key employees typically are the CEO, COO and CFO. Sometimes, certain sales, marketing and production supervisors are included in this group. Other employees usually aren’t told until a deal appears imminent or certain. 

If it’s likely the business will be moved and/or wholesale employment cuts will result, most owners will confine early disclosure to executives integral to the sale process. “Stay bonuses” offered to these employees can help keep and display a unified company. Such incentives offer individuals payment for remaining with the company for an indicated period (often at least until the sale is completed). Executives often receive stay bonuses and move higher in the new organization. Bonuses frequently are paid to long-time key people to reward past service and soften the blow of termination. 

Once employees are informed of a planned sale, it’s essential to fully inform key customers and suppliers, an activity best done in-person. 

Climbing the new ladder

Buyouts often lead to better days for all concerned, with top employees frequently excelling under new ownership. Consider sharing these successful, high-profile examples with your employees: 

- After Hormel Foods Corp. acquired Dubuque Foods Inc., the latter company’s CFO, Michael McCoy, became Hormel’s executive vice president and CFO.

- Following Curtis-Burns Inc.’s purchase of Nalley’s, the then-president of Nalley’s, David McDonald, became president/CEO of Curtis-Burns. In addition, Nalley’s Executive Vice President T. William Petty became president of Nalley’s and eventually president/CEO of Curtis-Burns when McDonald retired.

- The Kroger Co.’s buyout of Dillon Cos. in 1983 led to two Dillon execs—Joseph Pichler and David Dillon—becoming the immediate-past and current Kroger CEO.

Best is yet to come

The bottom line is buyers don’t pay premiums so they can destroy a business. If anything, the ensuing changes should prove positive for the company and its employees. In fact, a case can be made that employees will enjoy security and even greater opportunity for advancement with a new owner who’s equipped with strong finances and the intention and means to grow the business.  

Keep this top-of-mind and relate it to employees as you move forward and enjoy the fruits of your labors.

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More Information on Employee Communication

Lists of links to external articles are available in our
Knowledgebase - HR - Managing Change
Knowledgebase - Strategy - M&A

Some links for your own research