Most manufacturing sales include a seller's note. Five ways to help the acquirer succeed once the deal has closed.
Most manufacturing company sales will include a portion of the purchase price in the form of a Seller’s note.
A seller’s note gives the Buyer confidence that the shareholders of the company they’re buying will make themselves available for training and transition post-acquisition. They can also bridge the perceived value gap 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 transition smoother, but it will also help ensure your Seller’s note gets paid by supporting the Buyer's success.
Sellers can help or hurt the transition process.
The 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
- 401K
- Set up utility service
As you approach closing, provide the Buyer with detailed lists of your service providers.
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.
Introduce the Buyer and Reassure Your Employees
After the acquisition, it’s incredibly important to introduce the Buyer to your team and explain why this Buyer is the right candidate to take over the business.
Employees will be nervous about the company's future 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 opportunities for staff that didn't otherwise exist.
Support the Buyer as the Company’s New Leader
Many business owners believe that no one could do their job as well as they can. This is true, especially for 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, you must remove your ego 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 about him to your staff.
Out of habit, staff will come to you with questions. Refer them to the new owner of the business.
You can help your staff treat the new owner with respect. If you treat him with respect – the staff will follow your lead.
Introduce the Buyer to Customers Gradually
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. So the Buyer decides how and when to notify customers.
Once again, ego can play a role for both the Seller and the Buyer. 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 the ability to pay the Seller’s note.
Ideally, introduce the Buyer as a partner brought on to ensure the company's continuity. 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 you announce the Seller’s ultimate retirement, it’s no surprise, and the customer is already comfortable with the Buyer and has been dealing with him for some time.
Again, set your ego aside and take a gradual approach.
Share the Company’s Tribal Knowledge
Every business has operating procedures unique to it and small customer idiosyncrasies that need to be addressed, which might not be fully documented but are part of an organization's “tribal knowledge.”
Cooks know that sometimes, when someone shares a signature recipe, they find something not quite right in the result, even though they followed the recipe. Sometimes the chef sharing the recipe leaves out a critical ingredient, so 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 may want a nice bottle of Cabernet, and Customer C appreciates it when you ask how his special-needs child is doing.
These things contribute to the company's success, 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 – Five Ways to Ensure a Successful Manufacturing Business Transition
- 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
- Share all the company’s tribal knowledge, along 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.