Perception Is Everything

By Loren Smith –

In the selling and buying of companies, the critical period between signing a letter of intent and consummating a sale (a closing), can be fragile. During that process known as due diligence, the prospective buyer will normally have contact with various team members of the company being acquired, and the communication that takes place is extremely sensitive because the current employees are likely to be anxious about how life will unfold under new ownership: Will the change affect my job security? Will it affect my job description? 

That probable unease must be seriously considered by the buyer because it is imperative that folks working for the company being acquired stay motivated and confident after the transaction closes.

A number of years ago I observed what could have been a case study of how a buyer should not interact with members of a management team during the due diligence process. This buyer told members of the management team that his engineers would be coming in after the transaction closed to dramatically improve their production process. He also told key members of the team that if their contribution was questionable, they would have to prove their worth after closing.

But when the acquiring company was confronted with the damage that these comments had wrought, the response was “That’s not what we said.”

Of course, the issue was not what was said. It was what the employees thought they had heard. 

The lesson here is clear: A buyer closing on an acquisition is certainly free to do anything he or she wants as the new owner of the company, but exacerbating understandable nervousness among current team members can be a calamitous misstep. This is a good way to lose people who otherwise might be valuable members of the team. Further, their nervousness might undermine their job performance. Fortunately, the vast majority of buyers I have dealt with take pains to reassure and motivate prospective employees during the delicate due diligence period. They understand that perception is everything.