Avoid this common pitfall to avoid killing the deal
This past week I witnessed the rapid death of an anticipated business transaction. Let me set the table.
The buyer and seller had come to a general agreement on terms and a closing date. They were in the same industry, and this was an opportunity for the buyer to expand her already successful practice, while the seller anticipated riding into a retirement filled with gardening, travel and increased interaction with friends. It seemed like a perfect fit, and the only items remaining was securing all necessary funding and performing due diligence. Those are two sizeable issues, but neither seemed difficult to overcome.
Both parties had agreed to keep the transaction confidential, with the intent to inform employees and the industry once all of the details had been properly documented and employee questions could be addressed successfully.
Both parties had agreed to keep the transaction confidential, with the intent to inform employees and the industry once all of the details had been properly documented and employee questions could be addressed successfully. As you may have already guessed, word got out, and the owners lost control of the narrative.
I suspect that the confidentiality breach wasn't malicious – it was simply an excited buyer sharing some good news with a manager in “confidence”, who then spread the information to other members of the team in “confidence”. Before long all of the employees for the buyer, along with some vendors, had heard the news – or at least a version of it. It didn’t feel particularly good to a key employee at the selling business to find out what was happening through a shared vendor. She was told that “everyone knew about it” – except for her, of course. She marched into the seller to announce that if the transaction proceeded, she would quit along with other key employees. The seller was faced with losing key personnel and felt she needed to cancel the negotiations.
This is a common story in transactions involving small businesses. While it may seem innocent to let trusted individuals know about the pending transaction, it will quite often lead to a loss of confidentiality and control of the narrative. Employees are understandably nervous about such events and how it might affect their livelihood. If answers are not readily available the natural response, especially in a strong jobs market, is to consider options. It is how employees retain control.
Keeping confidences to a strict need-to-know is critical in M&A transactions. All parties who are privy to the transaction must carefully understand the confidential nature of the negotiations, as well as the plan for how and when information is to be shared. You can’t guard against leaks – just ask the folks in Washington DC. Great care must be taken to advance information at the right time and place – understanding that common questions need to be addressed as the information is given.You’ll be posting loads of engaging content, so be sure to keep your blog organized with Categories that also allow visitors to explore more of what interests them.