The sale of most manufacturing companies will entail a portion of the purchase price be in the form of a Seller’s note. Seller’s note gives the Buyer a comfort level that the shareholders of the company they’re buying will make themselves available for training and transition post-acquisition. They can also be an important bridge in the gap of perceived value between Buyers and Sellers.
The approach to closing can be incredibly stressful for the Buyer. While you may have built your manufacturing business from nothing, the Buyer is acquiring an established business and likely spending millions to complete the transaction. Do everything you can to make the approach to closing easier. This will not only make the process of transitioning smoother, but it will also help to ensure that your Seller’s note gets paid, by ensuring the success of the Buyer.
Sellers can help or hurt the transition process. Following are 5 tips for helping the acquirer of your business succeed post-acquisition:
Pre-closing action items - The Buyer has a lot of things to do in a short period of time including establishing:
- Business Insurance
- Property Insurance
- Payroll Services
- Banking relationships
- Employee benefits
- Set up utility service
On the approach to closing, provide detailed lists of your service providers to the Buyer. These providers already understand your business and will likely give the Buyer better terms than if they start from scratch with a new service provider.
Introduction to the staff:
It’s incredibly important post-acquisition that you introduce the Buyer to your team and share with them why this Buyer was the right candidate to take over the business. The employees will be nervous about the future of the company and their job security. They need to hear that the person taking the helm is qualified, that you have faith in him and that the Buyer will grow the business and create an opportunity for the staff that did not otherwise exist.
Remove your ego from the transition process:
Many business owners believe that no one could do their job as good as they can. This is true especially of retiring founders. You’ll be tempted to say to a staff member, “Well, that’s not the way I would do this task.” For a successful transition, your ego must be removed from the situation. The buyer may have different ways of doing things.
To help ensure success, your job is to support the Buyer and always speak positively to your staff about him. The staff, out of habit, will come to you with questions. They should be referred to the new owner of the business. You can contribute to your staff treating the new owner with respect. If you treat him with respect – the staff will follow your lead.
Introduction to the customers:
If the customers of your company are not comfortable with the fact that the business has been sold, your Buyer’s entire investment could be at risk, and your Seller’s note could be in jeopardy as a result. The ideal way to inform customers post-acquisition of new ownership can be summed up in one word, “gradually.” Sellers often make the mistake of wanting to spearhead this transition item. Yet, it’s the Buyer who just spent millions of dollars. Therefore, the how and when of customer notification is up to the Buyer.
Once again, ego can play a role in this, both the Seller’s and the Buyer’s. The Seller wants the customers to know he’s no longer running things in case of a fumble and the Buyer just made a huge spend and wants everyone to know who’s in charge. A gradual introduction is best to ensure customer retention, Buyer success and ability to pay the Seller’s note. Ideally, the Buyer should be introduced as a partner brought on to ensure the continuity of the company. The Buyer and Seller should both be involved with customer communication. Over time, the customer should deal more and more with the Buyer instead of the Seller. When the announcement of the Seller’s ultimate retirement is made, it’s no surprise and the customer is already comfortable with the Buyer and has been dealing with him for some time. Again, removing your ego and taking a gradual approach is best.
Be willing to share "all" tribal knowledge:
Every business has operating procedures that are unique to it and small customer idiosyncrasies that need to be dealt with, which might not be fully documented, but are part of the “tribal knowledge” of an organization.
Cooks know well that sometimes when someone has shared a signature recipe with them, they find something not quite right in the result, even though they followed the recipe. Sometimes the chef sharing the recipe will leave a critical ingredient out so that the recipe is never as good as the original. If you’re not forthcoming with all the information the Buyer needs, you’re hurting your legacy. For instance, Customer A may expect a bottle of Kettle One at Christmas, but Customer B, a nice bottle of Cabernet and Customer C appreciates when you ask how his special needs child is doing. These things contribute to the success of the company, but they’re not necessarily documented anywhere. Share everything and give the Buyer the tools he needs to succeed. In doing so you help to ensure your legacy.
In review – do these 5 things to help the acquirer of your manufacturing business to succeed post-acquisition:
- Provide a list of all service providers used by the company before closing
- Properly introduce the buyer and express your faith in his ability to ensure the future growth of the company
- Always treat the buyer with respect when communicating with employees and direct them to the buyer for key decisions
- Introduce the buyer to customers gradually, and let him take the lead on this issue
- Readily share all the company’s tribal knowledge together with any customer or employee idiosyncrasies.
In following these steps, you will help ensure the buyer’s success, the continuity of the company and the future payment of your seller’s note. For more information on how you can be more successful in helping an acquirer of your business, contact us here.