How to Tell Your Employees You're Selling

**Jim Ebinger** (0:00)
Early disclosure can destabilize a team, trigger departures, and actually kill the deal. If it's done right, it creates loyalty, trust, and a smoother transition. So the key is having a strategy, not winging it, transact in order that they can die faster. That's not the intent. The intent is to transact so that the company can be more successful going forward. And that usually means more opportunity for the people that are key players. But if you've built a business where without you, everything crashes and burns a week later, then that's a tough business to sell because a smart buyer is going to suss that out.

**Jacob Oros** (0:41)
Welcome to M&A Talk, the number one podcast on selling a business brought to you by Morgan & Westfield, a boutique M&A firm specializing in the sales of small to mid-sized companies. I'm your host and president of Morgan & Westfield, Jacob Oros.
If you're considering selling your business and you'd like to work with me throughout the process, you can schedule a free consultation at morganandwestfield.com. Or if you'd like my team and I to perform a valuation of your company for a one-time fee of $1,500, visit morganandwestfield.com or see the link in the show notes. And today we're going to talk with Jim Ebinger. Jim has been on the show multiple times in the past. He's a former entrepreneur, he's had multiple exits. He's a private equity operator, interim CEO, among many other things. And Jim's got tons of experience in the M&A space on both sides of the table, both as a buyer and a seller. And we're going to talk about the very important topic of should you tell your employees, when should you tell your employees about the sale and how should you tell them? And Jim, welcome back to the show.

**Jim Ebinger** (1:50)
Hey, it's great to be here, Jacob.

**Jacob Oros** (1:53)
So we're going to talk about a pretty important topic today, when to tell your employees, how to tell them. I know a lot of owners are very reluctant to inform their employees. What, before we kind of get into the meat of the conversation here, what is your experience, how many businesses have you sold and what's your experience been in terms of informing the employees?

**Jim Ebinger** (2:12)
Sure. Well, I've been a part of a number of transactions, a couple of which I owned myself and then a number of others that I was party to is part of what I do in the private equity space. And I've seen it across the gamut. I've seen it handled correctly and where the employees were justifiably excited, where there was great communication and it worked as planned and then I've seen the opposite, which is no plan in place, employees with lots of anxiety and not handled properly to where you had a real storm on your hands for both the seller and the buyer on the day of the transaction. So maybe it would be good to talk about the things that makes it a successful transition.

**Jacob Oros** (3:07)
And now, you're an operating partner, interim CEO. What other things have you done since your exits?

**Jim Ebinger** (3:14)
So I've partnered with private equity firms as like you said, an operating partner. So I'll work with portfolio companies and the executive teams on specific projects or initiatives that they're putting in place in order to create value in the business or to get to exit whatever the particular goal is. And then I've done interim CEO work where if I'm on the board for example of a company and we're struggling or there's a turnover in the CEO ranks for whatever reason, I've jumped in and run those companies. So I find myself as kind of the Swiss army knife as a partner to PE firms where I can help them on the operation side, help them with executive leadership and scaling the business. And I can also help in a time of crisis.

**Jacob Oros** (4:05)
Let's spill the beans here. What do you think is the right way to handle telling your employees?

**Jim Ebinger** (4:11)
Well, this is the topic, Jacob, that keeps sellers up at night more than any other, I've found, more than price, more than taxes. And the fear isn't irrational, because if you do it wrong, early disclosure can destabilize a team, trigger departures and actually kill the deal. If it's done right, it creates loyalty trust and a smoother transition.
So the key is having a strategy, not winging it. And so you have a couple of different junctures that you can get employees involved, and maybe it's not all employees at each juncture, but maybe it's phasing in of some employees, and that largely depends on who you can trust. But the first milestone that you get to is that letter of intent. And pre-LOI, I really wouldn't tell anybody, but before it deals under LOI, the risk of leakage far outweighs any benefit of disclosure. I mean, even your most trusted manager, even your spouse's best friend who works in the office, the circle should be you, your attorney, your accountant and your broker, and that's it.