Building a company that’s valuable enough to sell is a huge accomplishment, but for many entrepreneurs, a sale marks the beginning of a new set of challenges. As part of the acquisition process, employees come and go, priorities and processes change, and entrepreneurs might experience a flood of emotions about selling their “babies.”
The first thing to remember is that no acquisition is the same. Some target companies are acquired by private equity firms, and some by billion-dollar conglomerates. As such, each acquirer has a different set of goals and reasons for purchasing a company, be it strategic or economic. The job of incorporating a company is the acquirer’s job, and whether the process is a success has little to do with you. Some companies are great at it, while some are not, but keep in mind that even a great company finds success about 2/3 of the time when it comes to acquisitions.
The challenges associated with the acquisition process might feel overwhelming at first, but they are entirely manageable when you know how to deal with them. Here’s how to lead your company and employees through these challenges with resolve, diplomacy and grace.
Challenge No. 1: High Turnover
An acquisition involves more than just combining financial statements. It also involves combining workforces, and while this can be a very attractive prospect to an acquirer, it can also bring with it high turnover. After all, it’s hard to justify having two accounting departments, two marketing departments or two CEOs when one of each is necessary. Cutting out the cost of redundant positions can make an acquisition can go from a money-loser to a game-changer.
This process is the main reason why layoffs are very common after acquisitions. In fact, of the 10,000 workers surveyed by the Kenexa Research Institute, 44% of employees whose companies had gone through an acquisition in the last 12 months said they experienced layoffs.
Layoffs naturally create turnover, but the size and scope of your layoff might leave the remaining "survivors" feeling demoralized and anxious about keeping their own jobs. Kenexa found that only 43% of employees whose organizations had conducted layoffs in the past 12 months felt confident about the future of the company. Only 35% say they felt confident in their senior leaders.
If layoffs are part of the acquisition, then don't mislead your employees by claiming things will be “business as usual." First, identify key employees who are critical to the integration, and inform them quickly that they are staying. If you can afford it or are worried that they'll jump ship anyway, consider offering stay bonuses or performance incentives tied to transition milestones. Once those employees are informed, your layoff should follow three rules: make your cuts concise, make them quick, and if possible, make them only once. You may not have the option of terminating all redundant employees across the company at the same time, but doing so will help mitigate any culture shock that may linger with remaining employees.
Challenge No. 2: Culture Shock
Another big post-sale challenge involves effectively melding two corporate cultures together. Delloite defines culture as "the long-standing, largely implicit values, beliefs and assumptions that influence behavior, attitudes and meaning in a company."
After your company has been acquired, this might mean that the decision-making style could change from the consensus method to a top-down method. This can affect the operation of key groups, as some groups might rely on virtual communication methods while others rely on in-person collaboration. The combined company should take note of how its remaining employees have historically operated, and they should address this change, if any, accordingly.
For those that have never experienced it, culture shock can rock the boat and ultimately lead to breakdowns in productivity and morale. Employees might dislike or even resent the new ways, which can lead to bungled projects, reduced customer satisfaction and lower profits. To help implement a new culture, management might begin rewarding employees with behavior-based incentives for adhering to the new environment.
In other words, you need to do more than just order new mugs and hang inspirational posters. Deloitte recommends that management first establishes and communicates its new decision-making process to the entire company. When doing so, be sure to timely and concisely communicate the new company culture. Finally, clearly show employees how the new culture benefits them. Explain how they can make more money under the new reward plan or why their lives will be better with that new dress code.
Challenge No. 3: Moving On
This third challenge isn't about everyone else; it's about you. Many entrepreneurs dream of the day they can sell their businesses, and they work hard to ensure they take the right steps to do so. For many, the sale is validation of their work and ideas. It's also a way to reap rewards from years of sacrifice. But then what?
First, there's a good chance that you won't walk away completely. Many deals require founders to stick around to transition projects, lead new efforts or consult. Sometimes, however, acquirers want to drive the business in a different direction—without you.
For those entrepreneurs who leave it all behind (or worse yet, are fired), the feeling might be akin to watching your child go off to college. The business doesn't need you anymore, so you go home to an empty house and an empty calendar. You might even feel seller's remorse.
If building businesses were a crime, though, many entrepreneurs would be habitual offenders. Many take time off after a sale and then get back in the game by buying or starting another business. And sometimes, acquirers aren't successful in running the businesses they purchase, which means you might have the chance to buy your baby back for a fraction of the price.
Selling your company can be one of the proudest days of your life, but rarely does it mean your work is done. Throughout the transaction, you'll have to make painful decisions, get everybody on the same page, and decide what to do next. But if you have a solid game plan, the transaction will be smoother, and your hard-earned success will be that much sweeter.