When Should Owners Tell Their Employees That The Company Is for Sale?
One of the most frequent questions we’re asked by Sellers is when to tell their employees that their company is for sale.
In many smaller companies, Sellers look at their employees almost as though they were family and feel an obligation or desire to “do the right thing.”
In general, the best time to tell employees that the company is for sale is AFTER closing.
If Sellers mention the potential sale to employees as the process begins, employees undergo a stressful period not knowing what will happen to the company or to their jobs. In certain industries where jobs are available, employees may leave in order to find certainty. They may also discuss the potential sale with competitors or customers, either in interviews or in other discussions. In the case of one particular business we listed, a Seller decided not to take our advice because she felt so strongly that she wanted her employees to know what was happening. Unfortunately, a large number of employees left the company, thereby greatly reducing its value.
Often times Sellers want to discuss the sale with their employees a day or two before closing. We recommend against this as well. First, it creates some additional level of anxiety, and second, there have been deals that have fallen apart right before, or even at closing.
The best time to tell employees is generally after closing. As soon as the former owner has told the employees about the sale, the new owner can be there to immediately reassure them of their importance to the company as it goes forward, and will hopefully alleviate anxiety before it has a chance to take hold.
As with any “guideline,” there are exceptions based on special circumstances that might be applicable to a particular Seller in a particular transaction. And, sometimes a seller may also have to evaluate and react to buyer requests to speak with employees prior to closing. Those exceptions need to be thought through carefully, and Sellers should be aware of the risks before making a decision to prematurely disclose the potential sale to their employees.