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My management team is considering a transaction. What should I expect?

About a year ago I celebrated my company’s successful exit to UnitedHealth Group. It was the ideal strategic exit that a small team of us at Helios had hoped for months earlier as we designed our sales materials, and one that I, as a product/strategy/corporate development/utility player had spent a significant amount of my post-Army career working towards. Today I spend my days on the other side of the table, talking to entrepreneurs with successful, growing companies that are considering a capital raise…some who are seasoned by multiple transactions but I sense that almost all – even the most grizzled entrepreneurs – are nervous about how their employees will react to a transaction. This is their team, and on many of the great teams with which we interact, these team members have become culture carriers, part owners, family. The goal of this quick share is to pass along one person’s experience from being inside of a company during a transaction process, hopefully quell a few fears for the folks sitting in the working man’s seat, and to provide a few words of wisdom for enduring, dare I say thriving through, a transaction. Note that my portfolio company experience is related to a control transaction while the opportunities in which SSM Partners invests are minority, growth investments, but I’ve tried to hone in on lessons learned that I think are applicable to both.

The Lifecycle of a Deal - a company man's perspective...

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First, let’s just acknowledge the stages of a deal for most everyone besides the CEO – although these stages often also apply to the CEO. You’re sitting head down at your desk one day…answering phones, designing a new product, talking to the strategy guy about why his latest idea probably isn’t a good one…and then someone with probably nowhere near enough knowledge to make the statement walks into your cube/office and says, “Hey, I heard through the grapevine that leadership is talking to investors about selling [part of/all of] the company.” From there, you’ll have a choice to make about whether to participate in the ensuing rumor mill, until at some point a member of the leadership team makes you aware of the process. If this point is before the transaction and you become a part of the “deal team”, you’ll be officially briefed into, or “read in” to the process. You’ll sign a Nondisclosure Agreement (NDA), after which your daily tasks triple as you balance the duties of your day job with diligence execution, and in your free seconds you think to yourself, “I wonder what a new owner will want to do with the company”. And then it happens. An agreement is struck, you suddenly find out that your new parents/partners aren’t out to destroy the company, and then you become increasingly focused on your own personal role in the new and maturing organization. Co-workers suddenly seem nervous about sharing information with you or letting you perform tasks for them that you would otherwise take on to help out. And finally one day – hopefully not too much later – you arrive to work feeling a bit more mature having gone through a deal and you suddenly find yourself, again, comfortable in your role and completely focused on solving problems for your customers.

A few thoughts to guide you through this process:

  • Do your part to squash rumors early. If you’re part of the deal team at any point in the process, communicate transparently and within the confines of the NDA. I came “under the tent” early in our process, so there was a lengthy period of time during which I was asking for diligence information from team members who were not read in. If you find yourself in that position, know who is and is not read in (your corporate legal team should be updating the list and sending it out), and do your part to quell rumors…again, within the confines of your NDA. Those things are there for a reason, and it really is important to only read in the team members who need to know. The rumor mill is catastrophic to productivity and can be a huge, unnecessary bog on morale.
  • Expect that your leadership team is communicating what they can, when they can, at any point in the process. Once I found out there was a deal to be done I had an unrealistic expectation that details about next steps would just come flooding in. That didn’t happen, for two reasons. Leaders – even the best leaders – probably don’t know exactly what’s going to happen leading up to or immediately after a transaction. I had excellent leadership that, between the four most senior of the team, had managed through a dozen or so portfolio company transactions. They knew our new parent well from business interactions and had done their diligence. But it takes time for new groups to solidify expectations and next steps. And second, the leadership team’s communication responsibilities have likely just increased significantly. They’re suddenly trying to balance communication with new investors, board members, and customers, along with the internal team.
  • Before the transaction occurs, unless it’s your job to think about such things, don’t spend any time worrying about who is going to buy the company or what they’re going to do with it after. I can probably think of a rare few scenarios where this might be a fruitful exercise, but in my experience deals aren’t done until they’re signed.
  • Post-transaction, be prepared to lead and speak up within your sphere of expertise, but keep in mind that land grabs are obvious. Throughout my career I’ve found that turmoil and uncertainty separate leaders from followers. This is especially true during and after a transaction. Expect co-workers (old and new) to fall into one of three buckets. (1) Followers. A large portion of the human population is made up of followers. Hence this will be, and probably should be, the biggest bucket. (2) Leaders. Note that I’m not referring to management, but rather leaders. Transactions have a way of bringing forth the most capable individuals to provide quick, accurate answers. (3) Land-grabbers. These are the individuals that attempt to go outside of their sphere of expertise to show their worth. These are usually managers who are trying to position themselves to manage more. Unbeknownst to them, they’re incredibly easy to spot. My advice is this: Assume best intentions, as everyone will be sensitive about their workload post-transaction. Don’t be afraid to take the lead on initiatives that are in your wheelhouse. And when you’re not leading, be the ultimate team player.
  • Finally, adapt and embrace the change. Organizations, like people, mature as they grow and a transaction – at least the type of transaction I’m referring to in this article – is an inflection point in a company’s maturation process. In my experience, less mature individuals dwell on the early days of the organization rather than considering how they can contribute to an ever-evolving culture.

About SSM Partners. SSM has partnered with talented entrepreneurs for more than 25 years. The growth equity firm invests in rapidly growing companies that have proven and differentiated software, technology, or healthcare business models. Starting with a relationship built on trust, SSM offers its entrepreneur-partners a thorough understanding of the growth company lifecycle and a collaborative approach to building great businesses. Learn more at www.ssmpartners.com.