Selling your business – Do you tell your employees you’re selling?

Selling your company is good news right? The answer to this question is dependent on the person hearing the news. Selling your business can cause a lot of stress and uncertainty for your employees. Stress and uncertainty can lead to reduced productivity, which is not ideal as you enter into negotiations. On the other hand, if you follow the strategy below, you can motivate staff and potentially add a few extra $$ to your sale price.

The seller’s conundrum – to tell or not to tell

When you have found a potential buyer for your business, you need to decide when and, more importantly, how you are going to tell your employees. Selling a business is a very emotional time and with SME’s it is generally the personal decision of the CEO/founder. Ethically you might feel like you need to include your staff in the decision, in particular, if your workforce is small. Employees in small organizations tend to have stronger bonds than in larger corporates, generally caused by a low staff turnover rate and a smaller hierarchy structure. But remember, although it may seem like the ethical thing to do there are risks that you need to consider:

  • Risk adverse employees, who have concerns in regards to future employment, may look for other jobs;
  • Like any piece of information, the more people you tell the wider the news will spread. Telling your staff, therefore, increases the chance your competitors get word of the sale and manipulate the situation against you; and
  • Customers who have previously been loyal may switch to a competitor. Normally when they have had bad experiences with the potential acquirer.

Divide and conquer

Not telling anyone in your staff is obviously impossible. A common tactic is to divide your employees into two teams. The first team needs to include your senior managers; you need them working hard in order to get the deal done. It is common that during the due diligence process the acquirer will talk to your senior management team, so you can’t keep them in the dark. Ensure all staff that is in this team sign an NDA, and offer them financial incentives to get the deal closed. This will help them focus on increasing the value of your business, and talk more positively when speaking to the acquirer.

The second team is the non-manager employees who should only be informed, via a meeting, once the deal is signed. The mood of this meeting will depend on the news you have for them. Often you will need to let some staff go and they may be resentful that they did not have more warning, so you can even split this group into smaller parts. Although this may seem “dog eat dog”, in the end, this is the nature of business.

From experience, it often ends up being better for your non-manager staff if you do not tell them. A lot of deals don’t get across the finish line. If you go into discussions thinking like this, informing you entire team every time you enter negotiations will diminish staff morale. Doubt and uncertainty may leave your team feeling empty, and many companies see in increase in staff turnover whether or not the deal goes ahead. A good leader sells a vision to their employees; this vision may seem somewhat hollow after you have told them you want to sell.

Reward all post-deal

Although not telling your juniors is the best strategy, that doesn’t mean you don’t need to reward all staff once the deal has been closed. Your staff would have all contributed to the successes of your company, and a good way to ease the news of a sale is money. If the employees are keeping their jobs, this can come in the form of a bonus negotiated with the acquirer. If you are letting staff go, this will come in the form of a slightly larger than planned redundancy payment. There are three main reasons for this payment:

  • As discussed in an earlier blog, earnouts are a common non-cash consideration. You may be linked to the performance of the staff that remains.
  • For the staff that a let go, they often will find employment at your competitors.
  • It is fairly common that past your non-compete clauses, you will re-enter the market with a similar, but a more focused vision. You may need you ex-employees (especially the now not-so-junior employees) as customers or even clients.

Don’t give away all your hard earned money, but what goes around comes around in business and keeping everyone reasonably happy will result in more good the bad.



Carl Christensen
Carl Christensen is a Principal with Deal Capital Partners, LLC and InvestmentBank.com. Before joining InvestmentBank.com Carl served as CFO for a $50M consumer events company. He is a former employee of both Goldman Sachs and Deloitte. He brings both breadth and depth to the M&A advisory team here at InvestmentBank.com.
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